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Penny Stock Investing: 4 Ways to Pick Winning Shares and Make Money From Them
Very Profitable But Have to Choose Very Carefully Summarized OverviewIn this article, you'll learn what is penny stock, why investors easily get hooked to it and discover four ways to pick the winning penny stocks.You'll also find information on why penny stocks are very risky and what is a syndicated or speculated stocks.
But most of the time, penny stocks are new companies that just get listed in the stock exchange. This makes almost all the small cap stocks are penny stocks indeed. Because of their smaller capital base, these companies are generally more vulnerable than larger companies during economic downturn.
Stock market investors like to make quick gains from its price volatility. Moreover, due to its nature of very cheap in price, stock traders often bought them in very large units. Sometimes, one per cent price fluctuations enough to make millions of dollars. That's how profitable it can be. However, most of penny stocks are under researched and received very low media coverage. Due to not having much publicity, these stocks can be easily syndicated by professional speculative investors. Moreover, it is not easy for average stock investors to verify if the rumours or some ‘insider tips’ are true. And because it was heavily syndicated, regular trend from technical analysis won’t work that easy. Due to these very high uncertainties, penny stock investing can be very risky for novice stock investors.
Good stock picks from fundamental analysis should consider earnings potential, revenue growth, debt loads, positive cash flows and other important financial ratios. Extensive study of the company’s financial statements is inevitable to discover the best medium to long term stock investment opportunities. To make money in penny stock investing, you must buy the one that have the most effective management and making the most money at the same time. And don’t forget to compare the standard financial ratios with other stocks in the same industries to predict which companies are destined to be successful. Good fundamental analysis of penny stocks can unleash the two per cent companies with superior stock investing opportunities. They are so profitable that can give better return than 90 per cent of the blue chip stocks. Undervalued Stocks It is not uncommon to see share prices slide dramatically. This has a lot to do with weak market sentiment than the underlying fundamental values. And today’s seamless communication through the internet, information from China can travel to US as fast as a blink of eyes. If this happen, you shouldn’t avoid the stock market, but take advantage on the undervalued stocks instead. Calculate its intrinsic value and buy the stocks if the share prices where within its margin of safety. Technical Analysis Under normal situation, technical analysis able to discover repetitive price trending of penny stocks. These patterns can reveal profitable penny stock trading by buying stocks with high probabilities of moving upward. With all the available technical indicators, you can make money even if the stocks are flat but are traded within some trading range. Promotional Stocks Promotional stock is a common penny stock that is heavily promoted by promoters who have substantial holding in the stock itself. The promoters generate market interest for the stocks in an attempt to drive the price higher. Once the stock prices are at the desired level, they sell their holding and generate substantial personal profits. Then, they simply move on to another stock and leave the original stock and its investors behind. Without any further promotion by new shareholders, the stock price will soon collapse.
To make money from this type of stocks, you need to participate early in the stock cycle and ride on their promotional effort. Otherwise, you’ll lose fortune against them.
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