First we must ask what exactly is a Penny Stock?
The Security Exchange Commission (SEC) defines a penny stock as anything with price under $5. These are stocks that are by there nature more risky. They are thinly listed and can move up and down fast. These are not your blue chip stocks that you invest in and don't look at a again for another year. These are stocks to be traded! The upside of course is that risk goes hand in hand with return. People have lost fortunes with penny stocks but they have also made fortunes, and sometimes in a very short space of time. Firstly a few points to look out, BEWARE of placing market orders. These stocks by there very nature are thinly traded. You want LIMIT buy and sell orders. If you don't chances are you will be taken. Now onto the basic strategy I will lay out for you today.
First you will need a Market Screener, there are many free ones available and I recommend Yahoo Finance Screener, its comprehensive, its reputable and easy to use. Once you have your screener you will need to screen for the type of stocks we are looking for.
1. We are looking for penny stocks, these are stocks under $5 so we want a share equal or less to this amount.
2. Next set the screener for market capitalization. Generally between $50 to $300 million is considered a microcap stock. We are looking for penny stocks though so we will set our screener to under $100 million. If you have trouble finding stocks that meet the other criteria this market screener can be moved up to mico cap territory.
3. This strategy looks for stocks which are a little unfavoured for the moment. We want to get our stock cheap. So next set the screener for stocks that have shown declines in the last year. We can do this because with our other screeners we will be looking for signs of value.
4. We want stocks that are showing positive earnings growth. Set the screener for postive earnings growth.
5. Next select stocks with a PEG of less than one. PEG is slightly preferable to PE as it incorporates growth. A PEG of less than one suggests it is slightly under valued.
6. Set sales volume to more than $500000 a day, with penny stocks it is important that you have enough volume to trade it. If it has no trading volume it doesn't matter how good a stock is
7. Finally set sales volume to a minimum of 1 million. Sales are less easy to manipulate than earnings
And there you have a simple 7 Point strategy for investing in Penny Stocks. Please note that this is just a starting point for investing in Penny Stocks. It is ONE way to select stocks. Also you will still need to know how to EXIT the share and when.
As I have mentioned early Penny Stocks are RISKY but there are also high REWARDS. There are many examples of people who have made fortunes at a young age in Penny Shares. A well known example is Timothy Sykes who made $2,000,000 while still in his dorm room. He then set up a hedge fund which crashed (There's the risk) but hes made it back again Another example is James Connelly or the "Penny Stock Prophet" as he is known, He while still in college, came up with a strategy that could turn $1000 inton $1,000,000 in 38 trades. His work his based in Quantative Behavioural Finance which is basically the effect that human psychology has on share pricing.
The Security Exchange Commission (SEC) defines a penny stock as anything with price under $5. These are stocks that are by there nature more risky. They are thinly listed and can move up and down fast. These are not your blue chip stocks that you invest in and don't look at a again for another year. These are stocks to be traded! The upside of course is that risk goes hand in hand with return. People have lost fortunes with penny stocks but they have also made fortunes, and sometimes in a very short space of time. Firstly a few points to look out, BEWARE of placing market orders. These stocks by there very nature are thinly traded. You want LIMIT buy and sell orders. If you don't chances are you will be taken. Now onto the basic strategy I will lay out for you today.
First you will need a Market Screener, there are many free ones available and I recommend Yahoo Finance Screener, its comprehensive, its reputable and easy to use. Once you have your screener you will need to screen for the type of stocks we are looking for.
1. We are looking for penny stocks, these are stocks under $5 so we want a share equal or less to this amount.
2. Next set the screener for market capitalization. Generally between $50 to $300 million is considered a microcap stock. We are looking for penny stocks though so we will set our screener to under $100 million. If you have trouble finding stocks that meet the other criteria this market screener can be moved up to mico cap territory.
3. This strategy looks for stocks which are a little unfavoured for the moment. We want to get our stock cheap. So next set the screener for stocks that have shown declines in the last year. We can do this because with our other screeners we will be looking for signs of value.
4. We want stocks that are showing positive earnings growth. Set the screener for postive earnings growth.
5. Next select stocks with a PEG of less than one. PEG is slightly preferable to PE as it incorporates growth. A PEG of less than one suggests it is slightly under valued.
6. Set sales volume to more than $500000 a day, with penny stocks it is important that you have enough volume to trade it. If it has no trading volume it doesn't matter how good a stock is
7. Finally set sales volume to a minimum of 1 million. Sales are less easy to manipulate than earnings
And there you have a simple 7 Point strategy for investing in Penny Stocks. Please note that this is just a starting point for investing in Penny Stocks. It is ONE way to select stocks. Also you will still need to know how to EXIT the share and when.
As I have mentioned early Penny Stocks are RISKY but there are also high REWARDS. There are many examples of people who have made fortunes at a young age in Penny Shares. A well known example is Timothy Sykes who made $2,000,000 while still in his dorm room. He then set up a hedge fund which crashed (There's the risk) but hes made it back again Another example is James Connelly or the "Penny Stock Prophet" as he is known, He while still in college, came up with a strategy that could turn $1000 inton $1,000,000 in 38 trades. His work his based in Quantative Behavioural Finance which is basically the effect that human psychology has on share pricing.