Penny Stock Picks – Speculation, Analysis and What to Avoid
You Can Ride the Speculation Wave
Penny stocks are exciting. This is the type of activity that will make it easy for you to jump out of bed in the morning. Speculation is one of the key drivers of many penny stocks. These stocks are commonly shares of young companies that are pushing the boundaries.
You can spend just a few minutes reading any technology website to see lots of energetic startups working on great ideas. It’s this type of energy that makes hot penny stock markets so exciting.
Large corporations don’t do a lot of innovating. This is why their growth is generally slow and steady. Many large corporations rely on growing by snapping up smaller and more agile companies that are innovating. These are the types of companies that can be found on the NASDAQ Small Cap Market or OTCBB. The key to speculation is identifying which companies are poised to break out before they make their big splash.
Do Fundamental and Technical Analysis Apply to Penny Stocks?
Shares of large corporations generally trade on analysts insights into factors like expected revenue. This is not the case with penny stocks. Their often young and volatile nature means standard methods of analysis are generally not the best way to determine value in this market.
The same is true for technical analysis. This method is commonly used to analyze large cap stocks. The reason it can be very accurate is large cap stocks have a high trading volume. This volume is not present with most penny stocks. While indicators can be used in your evaluation of penny stocks, it’s important to understand the approach you’ll take is different than with larger stocks.
Although fundamental and technical analysis can both be used to select penny stocks, it’s important to learn the differences that apply to using these methods for this type of penny stock.
How Not to Pick Penny Stocks
Did someone at work just give you a hot penny stock pick? Then this is not a stock you want to add to your portfolio.
The reason people don’t succeed with penny stocks is they don’t take the time to fully research their picks. They often blindly throw money at stocks based on a single tip they hear from a friend or co-worker.
Another way not to pick penny stocks is jumping on unsolicited tips you receive in your inbox. There are legitimate sources for solid penny stock picks. However, the legitimate sources are not pumping out millions of emails to unsolicited recipients. Receiving a pick you didn’t sign up for is almost always a sign of someone trying to profit from the ignorance of others.
You should also avoid allowing your emotions to cloud your judgment. Trading penny stock picks can be exciting. However, being successful requires keeping a level head. Don’t ever forget that less than 5% of penny stocks present sound opportunities. You need to stay focused on separating the wheat from the chaff to make the best penny stock picks that are financially rewarding for you.
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