Before we delve into the search for the winners of penny stocks, we need to give a brief overview of those stocks. There are many definitions of penny stocks. Some of them include price, market capitalization, and others – the way they are traded. To simplify things, we can use a combination of three. For the purposes of this article, Penny stocks are stocks below $ 5.00, with a market capitalization of less than $ 5 million, and the company’s shares are traded over the counter (OTC or Pink Sheets).. Now that we’ve figured out the definition, let’s move on to choosing the best ones.
You’ve probably heard the phrase investigate before investing. We believe you should investigate, investigate and then more. This sounds trite, but your level of success in investing a penny in stocks depends largely on the amount of work you put into the study. Don’t be like most people. Don’t go to penny rallies because you got a hot tip from a friend or read in the newspaper that someone committed murder. Penny stocks are not necessarily a quick ticket to wealth. They should be just a component of your investment portfolio (not your entire portfolio!).
When we emphasize on the study involved, we are not claiming that it will take 20 hours just to study one action. The first choice you make will take longer than the others because there is a learning curve in the process. Once you get used to it, you will be able to quickly filter out bad penny choices from good ones.
We suggest starting your research with a basket of 10 pence. You can use a stock screener, for example Yahoo Screener or MSN Stock Screener to filter out stocks that match your criteria. You can start by trading stocks in a certain price range, have a positive price-to-earnings ratio and a range of earnings, earnings in the industry sector of your choice.
If you have a smaller set of stocks to study, you should go through stock price charts using websites like BigCharts or Wall Street Research Network. This will help you understand in what range stocks are traded, and with some practice you will begin to see what trading patterns are. You should keep a list of stocks that you are researching in a Yahoo Finance or Google Finance portfolio. In addition to being able to keep all your choices in one place, you will also be able to automatically get up to date with company and industry news.