What are penny stocks and how do you find the best ones to trade? It takes very careful research with the proper due diligence and a lot of luck! Penny stocks are very volatile and extremely difficult to predict. These stocks are high risk and every precaution should be taken. It would be wise to lower your risk by arming yourself with as much information you can get your hands on. You need to know everything you can possilbly dig up about the company you are about to invest or make a trade on.
Here's a short list of some of the things a trader should think about:
1. What exchange is the stock being traded on? If traded on the OTO, or also known as a Pink Sheet stock then you need to understand the increased risks with that. These companies aren't required to report very much and are not regulated. The OTCBB is better regulated and these penny stocks tend to be quite a bit more liquid.
2. Understand what your symbol represents. If your symbol has 5 letters. Know what that 5th symbol represents. You can see the chart here.
3. Where did you hear about the company? Is it being promoted by advertisement? If so, how long has it been promoted for? You don't want to be late in the game.
4. Take a look a the historical charts. Start with a 1 year chart and see if it's had a lot of steep inclines followed by steep declines. Then check the performance on a 3 month, then a 5 day and etc. Get an idea of any noticeable patterns.
5. Perform all the necessary due diligence on the companys financials. If available, review balance sheets, earnings and etc.
Again, this is just a short list of some things to think about when trying to narrow your list down to the best penny stocks. Take a look at our Top 100 penny stocks list and get familiar with the symbols that have the most active volume. Try to find out what might be moving that stock.