Things to Look For In Trading Penny Stocks

I know it may seem like penny stocks should be traded completely differently then you would the “regular” stocks. But that really isn’t the case.

You need to look at some of things before you decide to trade penny stocks, though. You’ve got to look at fundamental data, technical analysis, and news.

With fundamental data, you need to look at the statements from the companies. These statements include statement of cash flows, income statements, and balance sheets.

Research the company’s quarterly statements. See if each quarter on the income statement whether their net profits have steadily increased or decreased. Take a look at the balance sheet and notice the debt to asset ratio. Are debts increasing while assets are decreasing or vice versa.

If you plan on trading penny stocks, then you better understand technical analysis. Learn how to read a chart correctly.

It’s not like you have to smother the charts with indicators. You just need to be able to understand price action. Learn to spot support and resistance, just by looking at a chart. If a penny stock is going to take off it’ll show on the charts.

But arguably the biggest factor with trading penny stocks has to be the news. Every single year there are some penny stocks that come from oblivion onto the mainstream. It’s not hard to believe. All you have to do is look at any small pharmaceutical company which gets approved for a new dug. All of a sudden they are on CNBC.

Another thing to look at when it comes to penny stocks is the sector that the company is in and what kind of niche they are going for. Sometimes, its just a great idea. For example, take a look at eBay. When that company was first starting out do you think there were that many who people wanted to invest in an online auction site. Cut to billions of dollars of later, I’m sure many people are kicking themselves.

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!