By now, most of you probably have decided that you want invest in penny stocks and are ready to take some steps. But before you jump in, it is important to go over some key points that you need to keep in mind. With investments such as penny stocks, knowledge is where the power is at and those with more knowledge will out succeed those inadequately educated.
What are Penny Stocks?
Penny stocks, by their definition, are stocks that are traded at low prices per share. Ambiguous, I know, but that is the basic idea behind them. Now some people put the cutoff point for what is considered a penny stock and what is not to be a dollar (hence the penny in penny stocks) per share. I like to have my cutoff at $5 per share as that also accounts for inflation and quite frankly if a company is trading shares at mere few dollars per share they are considered to be penny stocks.
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Why Should I Invest in Penny Stocks?
The main appeal of penny stocks is their volatility - a $1000 investment can easily double within a week. But remaining realistic, with experience, the right tools and armed with knowledge including just a bit of luck, you will be able to make profit from penny stocks.
However, you might not be in the game for the small and sudden jumps that penny stocks experience, but rather you might want to play the long term “buy and hold” strategy which involves buying penny stocks and hoping that these small companies will grow into giants. After all, when apple just launched, who could have guessed it would evolve into a giant that it is today?
Penny Stock Tip #1: Stick to Simple Analysis Techniques
As you get more experienced with penny stocks, you may be able to use more convoluted, complex and in-depth technical analysis to base your investments on. But as a beginner, it’s much easier to just focus on support levels and resistant levels.
Resistance levels can be easily explained as the peak price that a stock goes up until it goes down. This creates fear at the peak which is known as the resistance. Support levels on the other hand are the opposite - they represent the lowest levels as to which shares go down to before they bounce back up. A useful tip to consider is that the stronger the specificity of the support level the stronger the psychological support becomes.
Now that you have grasped the meaning of those terms, all you have to do is find those trends in the price chart (I recommend at least a 6 month range) and use the daily data to find those levels. Once you find them, buy shares when they are close to support and are rising and sell before resistance occurs.
Penny Stock Tip #2: Utilize a Fundamental Stock Screener
Now, to start investing into penny stocks, you need to be able to see all of the available ones to sort through which ones are worth pursuing and which ones are not. But where would you go to find those kinds of lists?
Some people tend to just go on random forums and message boards hoping to find some good companies that way. Others might even just go aimlessly from stock to stock in hopes of finding a gem in the rough. But I don’t like to waste my time, as I hope neither do you, which is where fundamental stock screeners come into play. A fundamental stock screener is an automated screening device that can help you find some of the best penny stocks.
MSN Money is a popular option as it supports filtering through companies which are currently not listed on major exchanges. Another great option is the Over the Counter Markets which currently contains over 9,900 securities in which penny stocks comprise a sizeable amount of.
Stock screeners allow you to filter your stocks in a variety of ways including: dividends, cash flows, growth, revenue, earnings and intrinsic value.
You can also utilize a service that sends you tips on the best stocks to invest in at any given moment. Jason Bond Picks offers this kind of service, as well as programs that teach you the basics principles as well as tried and tested techniques that expert traders have developed from experience. Check out these programs here.
By now you should have a fairly good grasp of what penny stocks are as well as basic key things to keep in mind as you venture out into the penny stock investing world. As with any kind of investments, your journey will forever be a learning process and you can never know enough about various stocks and shares as new information is coming out all the time. Not staying up-to-date and current with stocks will only cause issues and headaches down the road not to mention you can potentially hinder your profits. With that in mind, the journey of a thousand miles begins with a single step. When will you take yours?