Buying Penny Stocks Isn’t Complicated
While patience and diligence are virtues, you can get superior returns on a few trades with small pools of money invested aggressively. This is when penny stock profits come to your aid. These are the stocks are usually priced at less than 5 dollars per share and are traded in OTC or pink sheets rather than fancy exchanges like the NASDAQ or NYSE. These investments can yield superior gains of 50-300% within a smaller trading window like 3 months.
Is there a simple process to day trade penny stocks? Choosing the ideal small cap stocks is easier after you use the above rules.
Financial statements that are audited by a third-party accounting firm is where you should begin. The profits are important but just looking at the final value on the bottom line is fraught with danger. Smaller firms are regulated to a much lesser extent so be doubly wary of all financial documentation. Know the growth story and whether the company has any serious competition. You need to know why the company is doing well, what their competitive advantage is and how they will keep it going in the short run atleast.
2) Look at the people in management positions. What makes them good leaders? Have they succeeded in the past and what is their motivation? Are they ethical?. These answers will help you figure out whether you are ready to buy penny stocks.
3) I hope you didn’t think you will not have to use Price/Earning ratios. This is one of the basic tenets of stock investing. Comparing the PE value of your penny stock company to the PE of the entire sector will help you figure out the valuation. After more experience, you will be able to filter out the bad stocks on the basis of Price-Earnings values.
The above are the starting points. When the time to buy the stock actually arrives you also have to consider the economy as a whole. Bear in mind the market trends – upwards like a bull market, downwards like a bear market or neither i.e. going sideways.
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