How We Pick Penny Stocks?

By Author: andrewethan5
Total Articles: 105
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Picking penny stocks is very crucial and probably more complicated than rocket science or brain surgery as their behavior is timely and situational. It is not as difficult as it sounds, some tricks can be greatly helpful to investor to understand their behavior and become a winner.

Institutional Ownership
Institutional ownership matters only when a brokerage(s) owns a good cut up of a company, otherwise this is of no use to the investor.
Recent Gains
Many penny stocks traders are there in the markets that earn best percentage over their investments. Scanning stock markets to keep track of such penny stocks that yield high for a few days to see if they have ‘legs' can put the investors on track to take their initial moves.
The Balance Sheet
Consider penny stocks picking as creating the universe, view the balance sheets as The Big Bang and infer that whether the company is in a position to sustain in the market for the next two years or not. Is it loaded with heavy liabilities like heavy debts? If the Balance Sheet feels reasonably sound, then, you have done half of your work.
Analysts' ...
... Ratings
Although such ratings are not always effective, yet seeing analysts covering a company tending to buy penny stocks provides some degree of comfort.
The Story
Investors must choose the company that is easy to understand- after all, nobody have any time to take a psychology lecture. Does the company belong to a hot industry section? If it is from a high tech or biotech, what kind of technology do they own? What does their client base sound like and how deep is it? Number of patents? Then comes the time to read the recent news that can shove us towards a better vision for the future.
Target Prices
All the above information that you seek for with every recommendation, you also need to put target prices on all the stocks. Choose your own way to set the target prices for your penny stocks that feel better to you.

Tips
Before going for the penny stocks, it is recommended to have a practice for the new investor's i-e to look charts in day trades and wait for mid of the day to understand the trend of any stock. If the stock rises initially, short it otherwise pick it at the bottom. (You will be able to understand when to pick up a stock at bottom for the day after some practice using daily up down averages.)

Cautions:
Every investor should have one thing in his mind before investing into penny stocks that success comes through growth in the value of the stock. Having 50 share of a $10 stock that appreciates 10%, or 500 shares of a $1 stock that trades up 10%, the investor will made 10% on his investment.
Small companies commonly pay low dividend on their penny stocks. Reinvesting in the business through using capital can in theory may prove helpful, small cap investments must rely on capital gains for investor to profit ultimately increasing the risk to the investor.
Beginner should be more careful in starting out with stocks trading at lower prices as they commonly do not posses good repute and are over-hyped investments in the penny stocks markets.

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