I know there is a lot of people who feel there are other kind of rules for trading penny stocks, but nothing could be farther from the truth.
There are a few things to look for when you are trading penny stocks. Some of these are fundamental data, technical analysis, and news.
With fundamental data, you need to look at the statements from the companies. These statements include statement of cash flows, income statements, 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.
To find penny stocks that are ready to burst, you also need to learn a little bit about technical analysis. Learn how to study a chart correctly.
You don’t need to put a bunch of indicators on the charts. Just learn about price action. If you look at chart, you can spot support and resistance lines, without any kind of help from indicators. When a penny stock really moves, its all shown on a chart.
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 key factor when picking penny stocks to trade is the particular sector the company is in. What niche are the trying to carve out for themselves? A perfect example is eBay. When eBay was first starting out, do you think many people were kicking down the doors to invest in an online auction site? I doubt it. But that was their fault, because you could see what happened to the company.
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