4 Tips For Those Looking To Buy Penny Stocks

For those of you who’ve recently decided to step into the realm of penny stock trading, there are a few things you should know before getting started. First of all, the goal of every investor, no matter who you ask, is to choose stocks to invest in that will allow them see realized profits.

Why else would you get into investing if not for the opportunity to make gains? Second is being able to recognize when to buy penny stocks and when to sell for profit. Have no fear, there are indicators to look out for which will serve as a call to action.

Pro Tip #1: Watch For Trends In Certain Penny Stocks

The first call sign to look for has to do with recognizing a specific kind of trend in the market. An analyst may say one thing, and a broker may say another. But both will agree that when a stock trades above its 200-day moving average, it could continue higher. When this occurs, these stocks are considered to be on something called a “buy signal”. Alternatively, if a stock trades below its 200-day moving average, it could be a “sell signal.”

Pro Tip #2: Penny Stock News Is Important

Second, investors should always have a pulse on penny stock news. Earnings reports, executive leadership changes, acquisitions, etc are instances that can impact a stock’s performance. The incredible part about using news as an indicator is that media headlines pop up nearly every hour of every day. These can be connected to industry updates, or have nothing to do with them. It becomes the task of the trader to sort through all the info to find the nuggets they need.

Pro Tip #3: Trading Volume Of Penny Stocks

One of the next areas to look into is a company’s volume, and how much of it is actively trading on the market. The volume of trades is a good indicator of the stock’s price patterns and potential future movement. If a company’s volume is on the rise, this generally means that traders have recognized the stock’s price and are buying more shares to make a profit. However, it should be noted that just because a stock is trading high volume doesn’t necessarily mean it is time to invest in the company. Shares can be considered “overbought” for this reason, and this can negatively affect the stock’s performance. 

Pro Tip #4: Know About The Insiders

Lastly, traders should look into which institutional investors are investing in certain companies. This could act as an indicator of whether to invest or not. Generally speaking, large institutional holdings signal that a company has been researched and checked out for issues. Large insider holdings can suggest that a company’s executive leadership is well-managed and has a track record of strong performance.