Buying Penny StocksHow to Buy Penny StocksBuying penny stocks. How to buy penny stocks. Penny stock investment advice and research tips. How to know which penny stocks to buy.
Photographic Print Now, I do not advocate long term investing in penny stocks. Most penny stock companies are not financially stable enough for that. But with some knowledge and a little skill, you can learn to find the best penny stocks for short term trading. Before you can make a fortune trading penny stocks you've got to learn how to buy them.
Stock Share PriceThis is the first thing you need to consider when buying penny stocks. The current share prices of the penny stocks you've got your eye on will often tell you whether or not to buy them.The term penny stock is commonly used to refer to stocks selling for $5 per share or less. This is the way I will be using it in this article. Any stock selling for less than 10 cents per share is a bad risk. And don't even think about buying sub penny stocks (shares trading for less than 1 cent each). You can make plenty of money trading penny stocks without taking on the enormous risk of trading such unstable companies. So go through your watch list and remove anything that is currently trading for less than 10 cents a share. Now, here's how to evaluate the stocks that remain: Calculate Bankruptcy RiskMost penny stock companies are tiny little micro caps. They are usually start ups that aren't making a profit yet. There are exceptions to this but that's exactly what they are. Exceptions.A penny stock company that is turning a profit and has adequate free cash flow is a gem to be treasured and traded often. These diamonds are out there. Once you learn how to buy penny stocks, you will know how to pick them. You will also know which penny stocks to avoid. The thing that makes penny stock investment so risky is bankruptcy risk. If a company whose stock you are holding becomes insolvent, the stock's market price per share can fall to zero and the shares can stop trading. You can end up stuck with a bunch of worthless shares that there is no market for. Stop loss orders will not protect you from insolvency risk. Bankruptcy risk is the main thing you will be trying to assess when doing penny stock research. So how do you know if a penny stock company is in danger of folding? You look at their financials--specifically a statement of cash flow. You can find this information for free online. Just Google it.
This page will tell you what to do with the information you find in a penny stock company's financial reports.
Stock Market LiquidityYou don't want to buy penny stock and then have trouble selling it later, so you need to check the stock's liquidity or trading volume.I usually do this by pulling up a 3 month daily chart. In addition to each day's high, low, and closing price, the chart will show you how many shares traded each day. Good penny stocks to buy trade at least 150,000 shares per day. Top penny stocks have a trading volume of 1,000,000 or more. Avoid buying penny stocks with a trading volume of less than 100,000 shares per day. There may not be enough buyers around at your price level when you want to sell it.
Stock VolatilityStock price volatility is a measure of the price swings from session to session. Penny stocks are notoriously volatile. This is what makes buying penny stocks so profitable. And so risky. This page will help you figure out if a stock fits your risk profile.
OTC Stock TradingMost (not all) pennies are traded in the over the counter or OTC stock market. OTC stock trading is a little different than trading off the major exchanges. Until you have some experience, my advice is to stick with the bulletin board when trading OTC stocks. Avoid the Pink Sheets exchange for now.
Penny Stock Brokers
The Pink Sheets
What Are Penny Stocks?
Penny Stock Day Trading Info
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