The Best Penny Stocks Are Ones That Meet Specific Trading Criteria
Penny stock trading can be a lucrative business to get involved in, however, there is one particularly important factor to keep in mind: Not all penny stocks are created equal. The best penny stocks for trading are ones that meet specific trading criteria. Let's review a few criteria that you should pay close attention to.
But before we begin Iwant to once again define what is meant by a penny stock since there can be a great deal of confusion about this. A penny stock is any stock that is trading at less than $5 per share. Penny stocks are not a reference to only those stocks that trade at less than a penny per share.
So with that out of the way let's take a look at three specific criteria that the penny stocks you trade should meet. First of all, the best penny stocks will have good trading volume. If there is poor volume the stock is more likely to be manipulated at some time. Low volume stocks are easier to move by an individual trader. Ido not want to be in these low volume stocks for fear that a well capitalized trader may attempt to move the stock in the opposite direction that I want it to go. Personally, I would like to see volume of at least 500,000 shares per day. You need to determine which figure you are most comfortable with.
A second criteria is to trade penny stocks with a narrow spread. You will find that most of the time the higher volume stocks will have the tighter spread. By spread I mean the difference between the bid and the ask. So if a stock is trading at $2.30 bid and $2.35 ask then it would have a 5 cent spread. I would much rather trade a stock with a 1 cent spread. The 4 extra cents will begin to eat into your profits over time. If you are an active trader then it can make a significant difference in your profitability.
A third criteria that I would user to determine the best penny stocks for trading is to look for stocks that have had a recent pullback following some positive news. The positive news will serve as a catalyst for trading the stock long. Often following positive news the stock will make a significant run to the upside. At some point during this run traders will be satisfied with their profit and will begin to sell. This selling will cause downward pressure on the stock. Often it will be pushed toward a support level or a moving average line. At this point it will begin its upward move again. You want to try to enter the stock when it is pushed back to the support level.
If you follow these criteria you will find some of the best penny stocks to trade. As always make sure you have an exit strategy in place in the event the stock continues to fall. Never take major losses. The secret to penny stock trading is to only take small losses when you do lose. This sound strategy mixed in with the occasional big gainer will lead to successful penny stock trading.
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