Tips to Pick Best Penny Stock

Penny stocks are traded at a very low price per share on the stock exchange and are quite different from the big companies stock. Unlike blue-chip stocks; they have low market capitalization, prone to scams like pump and dump schemes, low traded volume, have high volatile price movement and is a risky trade for the investors. They have the tendency to move either direction irrespective of market conditions.

In spite of these shortcomings or challenges in penny stock trade, they always remain under the radar of investors and traders for both long and short-term investment. They have a potential to give huge returns to the investors in a very short period of time like double or triple the returns in just a matter of a couple of months.

It is also true that penny stocks have a very low success rate for investors. On average only one or two stocks out of 100 are able to give positive returns and rest end up into a loss-making decision for them. The decision to make the profitable penny stock trade must be wise and efficient. The nature of these penny stocks is different from other traded stocks, the investor needs to adopt different criteria in picking the best penny stock out of the lot.

Tips to Pick Best Penny Stock

Here are few tips that can be followed while choosing the best penny stocks for a profitable trade. These are as follows:

  1. Pay Attention to Trading Volumes: Most of the penny stocks trade at very low volumes compared to the small, midcap and blue-chip stocks. The reason for low volumes is that they don’t remain in news, not known by masses and most of them are not in big investor’s radar.

It is advisable for an investor to pay close attention to the trading volumes of the stock on daily basis rather average weekly or monthly basis.

The trading volumes of the stock must be consistent. For example: If marijuana stocks are traded with a low number of shares on the 1st day of the week and no share is traded in remaining days of that week. The average weekly volumes will say it is only 4  shares traded per day but whereas it lacks consistency. Most of the penny stocks lack consistency and it becomes difficult for them to sell their holding even.

  1. Extremely Careful regarding Pink Sheet Penny Stocks: Penny stocks can trade on any stock exchange. Some of the penny stocks are traded on major exchanges like NYSE, Dow Jones etc. These are the big exchanges which are tightly regulated by SEC. Due to these regulations, there are very fewer chances of scams and have healthy market capitalization and also good financials.

The majority of the penny stocks are listed out of these major exchanges and rather on Pink Sheets. These pink sheets are more prone to scandals and scams as the rules and regulations are practically non-existent. This result in pink sheet stocks to be more risky trade for investors and they are advised to stay away or trade with extremely cautious.

  1. Avoid free Penny Stock Newsletter: Free stock tips on newsletters are a major source of pump and dump schemes for operators and big brokerage firms. The fraudsters recommend the penny stocks on newsletters, creating the hype and hence sell their holding at an inflated price which is popularly known as Pump & Dump scheme.

These free newsletters intended for scams, post a fake winner to showcase their positive results, just to make a positive impact on the reader. The free stock advice can ruin the whole of the investment. It is advisable to authenticate the source of information and clearly analyze the company’s performance before investing.

  1. Get recommended from Premium Subscriber: It is strongly advised to stay away from the free stock newsletters. One can put his money on stock recommended by the premium paid subscribers. These premium stock advisers charge a nominal fee for their subscription but the returns can be really huge. The profit from one can make pay for a fee many times over.

It is not easy for the small investor, who lacks knowledge; to analyze the company’s business. It is advisable to get recommendations only from a paid premium subscriber who has a past history of producing winners. Free penny stocks are always risky and manipulative.

  1. Promoters Holding: An investor choosing the penny stock for investment must ensure that promoters have a fair percentage holding in that company. It is advisable to pick the stock with a high percentage of promoter holding as they are the real owners of the company.

Chances for any penny stock to be a real gem or blue chip of future depends upon its business growth achievement. High shareholding of owners/promoters will ensure their vested interest in the business of the company and hence, it gives the opportunity for higher business growth.

Tips to Pick Right Penny Stock

The nature of penny stocks is quite different from other category stocks like Small cap, mid cap and blue chip etc. Unlike the other category stocks, the penny stocks are more volatile, easily prone to scams, have low market capitalization and thinly traded stocks.

The trend of penny stocks is altogether different, so as the strategies must also be different to pick the penny stocks. Although penny stocks have potential to give huge returns to investor in very short period, they need to be chosen cautiously. Most of the penny stocks are a flow show and only few succeed in giving returns.

Tips to Pick Right Penny Stock

Here are few tips to pick the right penny stocks out of a lot. These are as follows;

  1. Right Source: The most important tip to find right penny stock is to get information or recommendation from an authentic source. Penny stocks have been recommended by large number of fraudulent sources for purpose of trapping investor. One of the reliable source can be paid premium newsletters, which have a history of producing the winners.
  2. Avoid Listening Promoters: Most of the promoters of these small companies have been observed doing pump and dump schemes. Prices of the stock are inflated by fake press releases and fake positive information on websites. Buying at lower levels and then selling their stake at higher levels and trapping the small investors.
  3. Avoid Scam Blogs: Various blogs have been posted on the internet, just to trap the small investors. Writing blogs have been popularly used to create artificial buying in these stocks. Investor must look out for reliable source for his analysis.
  4. Consistent Trading Volumes: Investors are advised to pick the penny stock with consistent trading volumes. Lot of people gets trapped by seeing the average weekly or monthly volumes but fail to analyze its consistency.

Penny Stocks: Reasons to Trade

Penny stocks are stocks which are traded at very low prices. Although low priced penny stocks, these are very risky trades for an investor. These stocks are low capitalized stocks with high volatility in their stock price which always remain a worry some factor of an investor. These stocks are also easily prone to scams by big investors or operators and sometime even their promoters are involved in major scam activities like pump and dump here for penny stock FAQ’s

Penny Stocks: Reasons to Trade

In spite these risk being involved in these stocks, they are liked and always in radar of traders and investors. There are certain reasons that to why these stocks are always on radar of investors, these are:

  1. Cheap & affordable: The most important reason of penny stock being traded in spite of risk involved is that they are very cheap and affordable. Penny stocks are the small company stock traded at very low price. Being low priced, they are into buying proposition of almost all scale of investors and traders.
  2. High Returns: The penny stocks have a potential to give high returns to investors and that too in short period. These are small business companies which with their innovations can make their business grow at times to come. Any growth foreseen in their business can lift the stock price at their Highs. This urge to get huge returns in short term make investors feels attractive towards these penny stocks.
  3. Exposure to Press Releases: Unlike the large cap stocks, the penny stocks are more exposed to various press releases especially by promoters. This is mainly done to bring the stock into limelight and building investor confidence, thus increase buying into that stock. Though stock price increased artificially, if the sources are good, investors take it as opportunity to invest and to earn high profits.

Good Penny Stocks FAQ’s

Penny stocks are small company stocks quoted at very low price per share. These stocks are found in abundance being traded on stock market. These are very risky trades for traders as well as for investors. The success ratio of these penny stocks to become a gem is quite low. On an average only couple of stocks out of hundred turned to become a gem and rest just a loss making proposition for investor.

To pick a good penny stock out of a lot is a major consideration and there are lots of queries by masses regarding a good penny stock.

Good Penny Stocks FAQ’s

The major FAQ (frequently asked questions) regarding a good penny stocks are as below;

  • Is Good Penny Stock hard to Find: Unlike the big stocks, penny stocks movement is not correlated to the market conditions, So they have a different system of evaluation. For finding a good penny stock, it is prerequisite to have a system that shows reliable stocks. Majority of penny stocks news are fraudulent and misleading for investors. Being cautious to this flow of information and a better system makes an easy judgment for a good penny stock. It is easy to make profits out of a good penny stock but a real difficult task to find out than gem.
  • Can Penny Stock make Investor Rich: There is a general miss conception among people that penny stocks will be a blue chip in future and a definite source to become rich. In reality not all penny stocks show growth. Majority of them fail or even can get de listed and turn whole investment into zero. Although they have a potential to give massive gains in very short period and can make you rich, but only a few belongs to a good category like this.

Good Penny Stocks FAQ’s (part 2)

Some more FAQ’s regarding the penny stocks are as below:

  1. Should all Investors invest in Good Penny Stocks: Investor investing into penny stocks, although a good penny stock needs patience and risk attribute. Not all people are advised to invest or trade into these small company stocks. They are risky due to their huge price fluctuations and are easily prone to scams by big brokerage firms. Investor also need patience to trade into these stocks, as huge gains into these stocks comes with passage of time. Penny stocks may for years get ignored as big buying houses, slowly accumulate the stock over a period and then start making it rise. The price rise may be swift but don’t know when it will come.
  2. Best System to use for Finding Good Penny Stock: This is the most frequently asked question on blogs about the penny stock. As the profits from can be huge, so people are crazy investing into these stocks to make huge money in no time. There are lots of tools available to find a good penny stock but most of them are misleading. The best system can be the paid premium newsletters, paid research report from analysts and paid stock tips etc. It need to assessed that the source chosen must be authentic and history of producing winners.Good Penny Stocks FAQ’s (part 2)
  3. Do you need lot of money to trade into Penny Stocks: People feel like that more money is made from huge investment. This is not true in case of penny stocks. More money can be made from these small company stocks with little money. The penny stocks are low priced stocks, so more shares can be bought with less investment. The stock price movement in penny stock can be so large that it can get double or even triple in just couple of months.