As the name suggests, penny stocks are shares of companies trading at very low prices. The definition of a penny stock technically puts the price below $5 per share. But as you’ll find, many of these stocks trade well below $1. When it comes to making money with penny stocks, the challenge is finding undervalued gems from the universe of penny stocks.
Many people find it quite difficult as undervalued penny stocks are rare to find. Apart from this, finding a penny stock with a good value and strong potential revenue becomes a task. It is indeed quite hard to find.
In order to buy profitable penny stocks at a great value, someone must be willing to part with it. Here’s what I mean. If a company’s revenues are expected to grow with time, then the trader will prefer not selling it. But no one ever went broke by taking profit. So keep this in mind especially when you’ve got a good purchase price.
Scanners Can Help Find Penny Stocks
Since the first step for a successful penny stock trading is finding a good one at a bargain – many traders have now started using penny stock scanners. Stock screeners take a huge list of penny stocks and filter it down to a smaller one with various criteria that the trader is looking for. Only those stocks are shown through the scanner which is fulfilling all these criteria’s. Most of the widely used filters are chart patterns, performance, price information, and volatility. These parameters can help traders to find the best penny stocks to buy.
The traders can look for these parameters while screening:
- Current Penny Stock News – Look for business growth related news for a company.
- Float of the Shares – The penny stock float is simply known as the number of shares available freely for trade. It is calculated by deducting the closely held shares (employees, insiders and company stock ownership plans) from the total shares outstanding. Fewer shares to trade will give volatile price movements. More buying interest can drive up the prices in a very short time.
- Relative Volume –High volume of various penny stocks suggests interest in a particular company. This gives information about how much each stock is “in play” or in demand. A higher volume tells you that more and more traders are eyeing it and there will be enough liquidity in this stock.