Trading penny stocks may be complex business to deal with. You have to keep in mind that not all penny stocks can be treated as equal. The good penny stocks have some particular trading criteria. One should certainly focus on such criteria. Before trading one should know what is meant by a penny stock as there is lot of confusion on term penny stock. Penny stocks are trading under $ 5 per share. Penny stock is not restricted to those shares that cost a penny per share.
So let’s discuss three particular criteria for penny stocks trading that you keep in mind while dealing with them.
- Firstly penny stocks should have good trading volume, if trading volume is poor; chances of manipulation in stocks are more. Learn more on how to pick penny stocks here. Shares with low trading volume can be moved by any individual dealer. These low volume stocks can be moved in opposite direction by a well capitalize investor. You have to determine the exact volume of penny stocks on daily basis.
- Second criteria you should trade penny stocks with a narrow spread, spread here means difference between bid and ask. You will see that good volume stocks have tighter spread. If you deal as active investor time makes lot of impact on your profitability.
- Thirdly user should focus on such stocks that have feedback of some positive news in recent times. The positive news can work as motivation for investors. Usually positive news makes significant rise in the price of stock, however during some point traders start selling shares that can cause downward price value.
If you follow these three criteria you’ll be able to find some good penny stocks. Just be sure you have an exit strategy if value of shares continues to fall. Make a sound strategy for trading Penny Stocks.