Things to Look For In Trading Penny Stocks

Posted by 1nspire On July - 29 - 2008

by Chris Braff

Many people feel penny stocks should be traded in a much different style than the regular stocks, but that is simply not the case.

Some things that you do need to look at though before you start trading penny stocks. These are fundamental data, technical analysis, and news.

If you’re talking about fundamental data than you’re talking about the financial statements. Make sure to look at income statements, statement of cash flows, and balance sheets.

Notice each quarterly statement. See if the company’s net profit has increased consistently by each quarter. Take a look at their asset to debt ratio. Is the company taking in more debt each quarter than assets.

If you are looking to find the penny stocks that are ready to explode then you are going to have to do some technical analysis. Pull up a chart!

There is no need to put a bunch of indicators on your charts. Learn to understand price action and movement. You’ll be able to spot support and resistance without the use of any indicators. When a penny stock is going move chances are breaking a resistance line to do it.

There may be no other bigger factor in trading penny stocks than the news. How many stocks come from nowhere to explode onto the market scene? Quite a few actually. If you don’t believe me, all you have to do is look at every time a small time pharmaceutical company gets approved for a new drug. Suddenly, you hear about them on CNBC.

Another important factor on deciding which penny stock to trade is the sector, and the particular niche that they are carving out. Sometimes, it can just be a great idea. A good example is eBay. Do you think when that company was first starting out, there were many people dying to invest in an online auction company? Probably not. Now its a billion dollar company and a lot of people missed the boat.

About the Author:

Chris Braff became an extremely successful penny stock trading. He found a system which tells you how to find penny stocks that have the most chance of increasing in value.