Watch our video on how to research penny stocks.
Knowing how to research penny stocks is the key to making winning picks. Penny stocks are small cap stocks under a dollar but can go up to $5. The low share price is attractive to investors especially if you don’t have a lot of money to trade in the stock market.
Buying a 10,000 shares of a stock at $0.08 is more appealing then buying a couple shares of a higher priced company. Penny stock investors tend to buy these small priced stocks hoping they’ll rise 10 times that amount.
Penny stocks can in fact make you a lot of money. Before you start trading these, you need to understand they are risky business.
Penny stock trading is mostly traders talking their position. If a trader needs to fluff up a stock price they’ll go around saying what a hot stock it is.
Cheap shares may seem more affordable to traders. You’re getting more bang for you buck when you can buy more shares at a cheap price. This is a the biggest mistake a trader can make. Hence the need to know how to research penny stocks.
Sure it seems reasonable at first glance. Buying 10,000 at 10 cents is better than 100 shares at $100 right? You’re getting more with 10,000 shares. You need to look at how many shares are available.
This is a factor most penny stock traders don’t consider. The more shares there are, the better the trading will be.
When you know how to research penny stocks you have an advantage over many other traders in the same sector. Penny stock companies are small businesses in need of cash flow.
Or they’re bankrupt companies using legal shells to trade. Small banks can also fall under this category. This doesn’t mean it’s bad to trade these companies. In fact they can be quite lucrative.
A small biotech company can be a great trade. Especially when the sector is hot. If that company gets FDA approval it could soar. Whereas a marijuana company may be a pump and dump kind of company.
As you learn how to research penny stocks be able to spot the pump and dump. Pump and dump stocks have a pattern. They usually have 2 or 3 really green days before they crash. Rinse and repeat.
The pump and dump makes penny stocks risky. Know how to safely trade it so you’re not stuck taking a loss. Penny stocks can lose their liquidity and they don’t move for a long time.
Beware of people who are telling you a stock is going to soar. They bought in at 5 cents and now it’s 7 cents. They’re telling everyone it’s about to take off and you need to get in before it hits a dollar.
You can definitely get into that stock if you want to take them at their word. But researching what the technicals tell you will keep you form making a bad trade. We teach how to trade real-time in our trading rooms. Check out our trading service.
As you learn how to research penny stocks look at fundamental analysis. Fundamental analysis looks at the financials of a company. Chances are if a stock had a dramatic spike in price, it’s going to correct itself.
You can use Yahoo Finance or a company like that to look at the financials. If you come across a hot penny stock list, most likely they’re pump and pump schemes. If a penny stock can be found on a main stream site they’re usually legitimate.
Traders will take profits and the price will go down. If the fundamentals are sound, you can use this dip to buy.
Use technical analysis as you learn how to research penny stocks. What do the charts tell you? The chart is going to tell you if it’s a pump and dump. Technical analysis tells you if it’s due for a price correction.
Penny stock trading is typically done intraday. Finding a good day trading strategy coupled with good technical analysis will help make the best trades. Use things like the moving averages and VWAP for support and resistance and entries and exits.
Know the trend and direction of a stock before you place your order.
You’ve learned how to research penny stocks but no matter how much research you do, ultimately they’re still risky. Never invest more money than you’re willing to lose.
HOW TO RESEARCH PENNY STOCKS AND WHICH TO TRADE
HOW TO DAY TRADE FOR A LIVING AND GET STARTED
DAY TRADING VS INVESTING AND WHAT ARE THE DIFFERENCES?
DAY TRADE FOR A LIVING AND GETTING STARTED
WHAT HAPPENS DURING TRADING HALTS?
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