Over the past few years, penny stocks have skyrocketed in popularity. This is because of the low barrier to entry as well as the ability to turn small amounts into large gains. Smart investors who’ve mastered the tricks well have the potential to generate quick profits, but the rest of the penny stock investors will experience severe losses. So, what does take to make good money on penny stocks? Let’s dive into more details regarding this concept.
Defining Penny Stocks
Penny stocks are sometimes referred to as microcaps, stocks under $5 or small caps. But it’s important to note that penny stocks aren’t usually considered as a major stock exchange and need an entirely different approach than other types of stock.
Generally, normal stocks are listed under NASDAQ (New York Stock Exchange), as well as other markets. Conversely, penny stocks are usually traded on the OTC (Over the Counter) markets. But still, most online brokers tend to support this market, so there are countless benefits you can leverage to give your business an instant uplift.
When considering where penny stocks are traded, OTC markets come into play. Penny stocks commonly listed on publications such as Pink Sheets might not have met the OTC Bulleting Board’s requirements, giving you minimal information to base your investment decisions and standing a greater risk.
Cheap Exchange-Listed Stocks or Penny Stocks?
Generally speaking, stocks listed on conventional stocks aren’t penny stocks, irrespective of how low their pricing plans are. If a company’s major hares suddenly dropped below a dollar, it wouldn’t necessarily mean that they’re penny stock. Several factors trigger a downfall in share price, even for a firm that’s still sound and reputable.
As you’d expect, companies that have stock on the exchange provide a certain level of confidence to investors, because they aren’t viewed as volatile. NASDAQ and NYSE demand a minimal market cap as well as share price and annual listing fees in order to list your company.
For instance, if a stock falls below the point where its price per share or capitalization is extremely low that it can’t meet these minimal standards, the market is at liberty to delist the stock.
In case this happens, the stock automatically moves to the OTC (Over the Counter) market. If you have shares in a delisted company, you’ll still retain those shares, but they won’t be valuable as much.
Finding Good Penny Stocks: The Trick
One of the biggest challenges in determining how to succeed in trading penny stocks is locating them. Finding an undervalued stock is extremely difficult since most investors tend to have the next big money-making venture on the radar. Plus, you’ll need to find an undervalued stock with a positive value, a promising outlook, as well as strong financials.
To make real money out of penny stock trading, you’ll first need to get someone to sell it to you at an affordable price. In the event that a company turnaround is expected, the trader is going to hold onto the shares to reap greater rewards. And this makes it even harder in purchasing these shares. Once you’ve bought the potentially lucrative penny stock, you got to be sure that you can turn around immediately and sell it at a profit. You could as well hold on it a little longer knowing that it will be a hot cake in the near future, but you just got it for a bargain since it isn’t hot right now. Nobody is interested in buying it.
Bearing in mind all this, the best way to make money with penny stocks is to find the hidden gem, purchase it at a bargain price, as well as holding on to it till the company rebuilds and resumes its major market exchange again.
Scanners Are an Incredible Tool for Finding Penny Stocks
To succeed in your penny stock trading, you need to pinpoint the stocks that have the greatest probability of going big. Most traders find scanners to be the best way of doing that. With stock screeners, it possible to narrow down a long list of available stock lists, while highlighting the main characteristics you’re looking for. This way, you’re only left with the stocks that perfectly fit your desired parameters. Some of the most popular filters include chart patterns, volatility, price, as well as performance.
Doing this will make it easier for you to get stocks that offer the greatest potential.
Understanding Penny Stock Chart Patterns
Just like other forms of stock market trading, penny stocks can be analyzed in two different ways: fundamental and technical analysis. Typically, fundamental analysis utilizes the company’s information like management, lawsuits, revenues, debts, as well as contracts. On the other hand, technical analysis utilizes trading chart patterns.
Though most traders prefer using fundamental analysis, combining the two methods can really provide more benefits than just sticking two one approach. Once you identify the best firms, technical analysis can provide you with plenty of information regarding the underlying shares.
Utilizing Financial Ratios for Penny Stocks
Financial ratios can be utilized together with other forms of analyses to establish the best penny stocks to trade. With sufficient financial disclosure, the same analytical approaches used for bigger companies can be utilized for assessing a penny stock’s net worth. With a positive trend on the balance sheet, it means that the value of the penny stock is quite higher, especially when based on projected performance.
Minimize Risk with Penny Stock Trading
Penny stocks are quite a risky investment. However, there are certain measures for lowering the risk and putting yourself in a money-making position. Avoid pink sheet stocks, avoid pump-and-dump scammers, avoid liquidity penny stocks, avoid overtrading, and concentrate on trading, not investing.
Doing this will help you lower your risk when trading with penny stocks and boost your earnings.
The Bottom Line
Though penny stocks aren’t 100 percent safe, they’re an incredible choice for those who want to invest small amounts and gradually improve their earnings. With the above strategies at your fingertips, you can rest assured that you’ll strike the best stock market deals. Click here for more penny trading strategies. Trade like a pro.