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