Intangibles of Penny Stock Trading

When is a penny stock really successful? When it’s matured and moved off the pink sheets to more mature markets and recognizable exchanges you hear mentioned every day: The U.S. based NASDAQ SmallCap Market, the European based Alternative Investment Market, Paris’s CAC-40 Index, plus others in Latin America, Asia, and Canada.

There are no shortcuts when it comes to making money in the stock market. Besides working through a stock broker or trading online, the same principles apply. But there are other factors at play that often go unnoticed by novice investors, the dreaded “intangibles” and all their twists and turns.

1. Be wary of incessant stories of penny stocks that hit the big time. Yes, there are winners out there, but unsolicited ads filling your junk email folder are there for as reason, and need to be carefully reviewed before buying any shares. The rule of thumb? Keep your eyes open for penny stocks that have demonstrated growth over a full 52-week period.
2. Pay attention to all disclaimers, and consider all penny stock picks with a healthy dose of cynicism. Just because social media has grown in leaps and bounds (Think Facebook, Twitter, Google+, Linkedin), that doesn’t mean someone who updates their status with a hot penny stock tip is in any position to cure all your financial ills. And if you take the medicine they offer, you may have something far worse than an allergic reaction! Keep in mind that you rarely see disclaimers with any of these social media outlets, which should raise a warning flag.
3. Stock market trends can provide key information, especially when it may be time to sell quickly.
4. Keep in mind that key executives for any company are understandably partial to their own stock. As such, keep your enthusiasm running a few gears below over drive, and always remember factors such as stock price over time, market position, and other factors to help you decide if a stock is a worthwhile investment.
5. Stay away from short sells, whether you’re a new investor or not. Why? Because of the volatility of certain stocks, even over the course of a 24 hour period.
6. Focus on high-volume penny stocks that have a trade volume equal to or greater than 100,000 shares daily.
7. Penny stocks that have experienced an earnings breakout – driven by a key product launch or increased market share – are good targets to consider.
8. Do not trade large positions. A rule of thumb is to not trade more than 10 percent of a single stock’s daily trade volume.
9. Keep your emotions in check, and try and separate infatuation from cold, hard facts. The best thing to remember is stocks serve a goal for any investor: To make money, which a sound company will reinvest in itself and turn even more profits in the future.