Finding good penny stocks requires checking the many variables that can predict the future of a stock. You wouldn’t purchase stock in any other company without first researching their value and future, and just because penny stocks are cheaper and quicker trades, doesn’t mean you should deviate from that strategy. It’s important to check as many factors as you can to get a complete view of the company, and run things out on paper before you put in the investment.
Technical Indicators
Technical indicators are a good thing to check with any stock. There are 4 really good indicators for any given penny stock: MACD, Stochastics, Bollinger bands, and RSI. Each show a different trend or focus in the market. Good penny stocks are usually confirmed by several technicals after a buy or sell signal.
Sometimes checking just one technical can give a false confirmation of a buy or sell signal. The price may have just climbed above the Bollinger bands for the day, confirming a buy signal. But, checking the RSI can confirm that the stock is possibly overbought.
Liquidity
Liquidity can also help determine value of a stock. If you’re seeing good technicals on a stock you’re tracking, then checking the liquidity can help make a decision. If there is no volume for the stock at the bid price, then it’s going to have low liquidity. This can be a sign of high volatility and risk averse traders should steer clear.
Charts
Charts are a great tool when picking penny stocks. Tracking the movement that a stock makes up and down can help make a decision about whether now would be a good time to buy or to sell. Just because a stock is showing good strength in the technicals, and has a high liquidity, it may not be enough to send you running to buy the stock. Check the charts to see if the patterns are suggesting that the stock is showing a bull or bear flag.
Positive PR
If that’s not enough, check to see if the company has had positive press releases recently. If a security looks good everywhere and is showing bull signals, but you are just unable to decide if it’s a good buy or not, check to see if the company has had some good PR recently. They could be planning to launch a new website, or had a variety of positive news, that could indicate that they’re stronger and growing more than the market reflects.
Putting everything together will help determine whether a stock you’re tracking is in fact as bullish as you think. Don’t rely on a tip or the word of others to know if you should buy. Run it through a list and test it out on paper before you buy. You may regret not jumping on the stock as soon as you did if it takes a sharp jump before you intended to buy, but you certainly won’t have that same regret if it takes a sharp turn down. It’s always best to look before you leap.
