Turning Penny Stocks Into Golden Opportunities
Trading penny stocks can be tricky, especially if you like to find them on your own. The good news is there are a whole range of websites that can help you spot and trade the best. When it comes to really improving your results with penny stock trading though " in a big way " top traders know theres more to it than simply looking for solid companies and using technical analysis to enter and exit trades.
Screening out the mediocre penny stocks is the key to being a successful individual trader. The following concepts will steer you in the right direction.
Is Management Motivated by Insider Buying or Ownership?
If insiders own a lot of company shares or sell a lot of their shares, you should pay close attention to the managements motivation. Owning a lot could boost the likelihood of success; selling a lot raises a red flag. Information about how much stock a companys management owns is a matter of public knowledge. Publicly held companies generally disclose the breakdown in an 8K and/or Form 4 filed with the SEC.
Putting a company in the eye of the public is just as important as fiscal success, especially when it comes to penny stocks. If companies dont promote positive news"be it the Internet, television or even newspapers"potential buyers will be left in the dark. A good public relations plan can make a big difference for a company.
If a penny stock you buy doesnt have a steady volume of buyers, you may not be able to exit the position at a reasonable price.
If 500 shares of a penny stock trade hands on one day and then 500,000 shares trade hands the next, which is it going to be when it comes time to take a profit on the 100,000 shares you may own? Liquid penny stocks are consistently liquid.
When a penny stock experiences a high-volume breakout, it often signals the start of an uptrend. However, in order for it to be considered liquid, the pre-surge volume simply needs to be respectable.
Could the company have been started on a whim, and fold for the same reason? Has the stock been trading long enough to at least provide a feel for how it trades or what the market thinks its worth? Or, has the company been sitting on a patent so long that its about to expire?
Most penny stocks are going to be of young, growth-stage companies, so a trader shouldnt expect a textbook example of a perfect investment. On the other hand, a company should be able to demonstrate that it will sooner than later bring a product to the market or turn a profit. (The same is also true with penny stocks of older, established companies though.)
Likewise, more than half of all stocks trade at a value under their IPO price within twelve months after their public offering sale. Thats not a problem for a true long-term investor, but it can make things challenging for a penny stock trader who wants to get in early shortly after an IPO. It can take a while for a new stock to settle in and start trading predictably.
Barring a crystal clear reason to make an exception to the rule of thumb, a publicly traded penny stock should offer a trader some sort of contextual history.
By accentuating your solid trading discipline with the above four elements, youll be capable of making vast improvement in your results and bottom line.
Article Source: FxTradingStock.com
About the Author
James Brumley is an expert on Penny Stocks with years of experience in identifying which Penny Stocks are a good or bad bet. In order to receive Jamey Brumley's ideas on which stocks to buy or avoid in the penny stock space, sign up for his free newsletter located at SmallCapNetwork.com
by: James Brumley
Total views: 124
Word Count: 597
Date: Wed, 29 Apr 2009
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