What are penny stocks?
Learn about Penny Stocks
Penny stocks are stocks that trade for under 1.00 and are usually not listed on the major indexes such as the DJIA – Dow Jones Industrial Average, The Nasdaq or the S&P Index. If you do find a stock for under a dollar on any of these indexes it’s probably because it’s dipped below the minimum. This happens from time to time but when it happens on one of the major indexes mentioned above they are usually in danger of being de-listed from the index if they stay in the price range for an extended period of time. Nasdaq has a 90 day time period before the company is de-listed if the stock maintains a price below 1.00
Penny Stock are usually traded on whats know as the Pink Sheets or Over the Counter or (OTC) Penny stocks are generally considered risky in fact quite risky they usually head lower but on occasion decent money can be made trading penny stocks. If you have an interest in trading penny stocks online make sure you’re aware of the risks involved. They are dangerous but can be profitable.
Where to find Penny Stocks Online:
If you interested in looking at what’s available in the penny stock market you can see them at the following websites.
Use either of these tools to locate penny stocks.
You can use Yahoo Finance:
Yahoo HTML Stock Screener
To view stocks under 1.00 simply choose Max Price 1.00 under stock price. Of course you’ll have the option to set other criteria such as Industry, Market cap, Profitability, etc.
Penny Stocks are volatile and this is the main reason they are both potentially profitable and at the same time dangerous. For example: Let’s say a OTC stock is trading for 1 penny 00.01 and you’ve purchased 100.00 dollars worth. If the stock simply goes to 2 pennies you make a 100% profit from a very small move but at the same time penny stocks can actually go below a penny and trade for a fraction of a penny and in the same breath you could easily loose your 100.00 or a portion of it.
Be Aware of Pump and Dumps
Penny Stocks are often the medium used for “Pump and Dump” scams. This means a person or group of people can artificially inflate the price of a stock intriguing others to buy shares/ Then when it the stock hits a certain price the person or group sell everything leaving the stock in a free fall back to the orig price.
A Potential Buying Signal?
A trend I’ve noticed and could be looked at as a buy signal. When a company is failing and the stock value goes down particularly in low priced penny stocks and if the share price declines quickly, many times you’ll see what’s referred to as a “Dead Cat Bounce”. This can be, in certain situation an opportunity to trade the stock. An example, if a penny stock plummets from, again only for example .20 cents down to .02 cents quickly, you just might see the stock bounce back to .07 cents and if you can get a few shares before the bounce you could stand to increase your profits by nearly 400% but again you could loose it.
Volume is crucial. For the beginner, volume is the number of shares being actively traded. In order to sell a stock, any stock there must be buyers for that stock. When you witness a stock market crash or even a particular stock crash, it’s often because there are many more sellers then buyers. You’re never guaranteed to have sell order filled, but with larger volume it is much more likely.
This is just an introduction to penny stocks I will be writing more on the topic in the future so stop by again. I’ll also write more about the stock market in general.
I recommend you do plenty of research and practice trading with a “fake” trading account before you actually purchase your first stock.