Penny Stock Trading
Find the Best Penny Stocks by Looking At The Stock Float
Written by troy on Monday, December 06, 2010 | No Comments
Categories: Penny Stock Advice, Penny Stock Articles, Penny Stock Investing, Penny Stock Trading
In your quest to find the best penny stocks to invest in you may want to consider one particular piece of data that is readily available to you: the float. Now we are not talking about an air inflated tube that your kids play with in the pool. The float of a company is the number of outstanding shares that a company has issued minus any restricted stock.
By outstanding shares we are referring to the penny stock shares that the company has already issued. As part of that are restricted shares which, although they are trading, are not officially available to the owner of record. These are usually given to employees of particular companies. The restricted shares become available after a particular vesting period.
It is helpful when trying to find the best penny stocks that you consider companies that have a low stock float. This means that there is not a large supply of shares on the market. The stock market is no different than any other market. At some level stock share prices are set by supply and demand. If there is a great demand for a stock but there are few shares available the stock price will escalate. Conversely, if there is little demand and many outstanding shares the stock price will most likely languish.
If you focus on stocks that have a low float then you have a better chance of turning a profit, even an explosive profit. If you are already invested in a penny stock with a low float when good news comes along you will have a good chance of experiencing a run up of the share price.
Now there is one word of caution when looking for stocks with a low float. They are easier to manipulate than stocks with a larger float. This is a common practice of some unscrupulous penny stock newsletters. They will buy up as much of the float as possible and then recommend the stock to their subscribers. As the readers attempt to pour into the stock the price soars. The newsletter sells to the subscribers and banks the profits. Be careful of such scams.
If you are on a few penny stock message boards and see a stock heavily promoted you might want to shy away from it. You don’t want to be trading a company that is being manipulated. The best penny stocks to own are companies with small float whom very few investors know about. These are the companies that can provide large profits.
Buy Penny Stocks For The Right Reason
Written by troy on Monday, December 06, 2010 | 1 Comment
Categories: Penny Stock Articles, Penny Stock Investing, Penny Stock Trading
Many traders buy penny stocks for the wrong reasons. This often leads to steep losses and eventually a disillusionment with penny stocks. I used to be a stock broker and I can’t tell you how many times one of my clients would call up and they wanted to buy penny stock shares because their next door neighbor or some family member had a can’t miss hot penny stock tip for them. Rarely, did I see the tip work out. The same is true of newsletter or other type of investment services. All of these “authorities” are encouraging you to buy penny stocks but most often their advice does not pay off.
Penny stocks are attractive. There is something about them that draws us to them. They are affordable and they present the possibility for large profit. For some penny stock traders it is the same thing as taking a trip to Vegas. If this is you then you need a “talking to” as my grandmother used to say. You need to understand the purpose of your penny stock investments.
I don’t believe it is a good practice to invest all of your available trading money in penny stocks. You should reserve the majority of your money for more core positions that you trade in and out of. These are companies that are solid and that you believe in. They would form the core of your account if you were a long term investor. Buying penny stocks should be reserved for a small portion of your portfolio. I would start with around 10 – 15% at the most. If you prove to yourself over an extended period of time that you are a good and disciplined trader then you can make the decision to increase that percentage slightly.
Penny stocks are generally companies that are under capitalized or who have had recent financial woes that has placed their company in jeopardy. This is not the type of company that you want the majority of your money invested in. However, on the flip side, penny stock companies can increase dramatically making them a very compelling investment opportunity. This is what draws people to buy penny stocks.
But you should use penny stocks to enhance your portfolio returns; they should not comprise your entire portfolio. Remember that just as quickly as penny stocks can increase in price they can also decrease in price with the same speed. So make sure that you are buying penny stocks for the right reason.