How to Pick Stocks when Penny Stock Investing

Many new investors are interested in learning how to pick stocks when penny stock investing. Penny stocks are highly volatile so it takes due diligence when building a penny stock list. Penny stocks are considered over the counter stocks and are traded on the OTCBB and the Pink Sheet exchanges. Investors who would like to trade penny stocks must understand that they can be extremely dangerous no matter the experience level, and they can be especially dangerous for beginner investors. Today’s article will focus on how to pick stocks when investing in penny stocks.

The first item to discuss is the potential profitability of the company you are interested in when picking stocks. You must ask yourself if they are making any sizeable profits, and if their profit to debt ratio is favorable. You must also watch how progressive the debt payoffs have been. These factors will indicate the success level of financial management for that company.

When learning how to pick stocks you must also come up with a screening process. Before you even begin investing in stock, you must formulate a list of penny stocks that you will watch every day for a predetermined amount of time. You should note that penny stocks that are trading at their 52 week high or low have the potential to be huge gainers in a penny stock portfolio.

The most successful way to trade stock is to look for industry trends. The idea is to get ahead of the industry trends by finding companies that are on the edge of demand. If there is a high demand for gold, then people will go out and buy gold. This actually does not signify forward thinking because the public has already taken notice. You must look for and identify these hot stocks on your own before the public in order to make the greatest profit. This is very hard to do for a lot of investors because it requires a lot of time and research.

Another factor to take into consideration when buying stock is the tenure of the company. Find out how long they have been in business. It is usually safer to invest in more established companies, but that is not to say that investing in newer companies is a bad idea when you buy penny stocks. Just be sure to do your research on the company to be sure it’s a wise move.

Another great way to find out how to pick stocks that you want to invest in is to look for those stocks that you have a personal interest in. You will find that you are more naturally inclined to study and choose the best stock picks because you are researching more heavily than you would be of stocks that don’t interest you.

It is important to be patient when learning how to pick stocks. It takes a lot of time and due diligence, but once you have built your list you can then begin to omit the stocks that don’t perform well as time passes. Just remember that penny stocks are highly volatile meaning that the potential for high rewards carries with it the potential for high investment risk.

Investor sentiment produces a couple opportunities during a price trend to make big dollars. The beginning of a bullish trend starts scaring the shorts. When new  bullish investor sentiment appears, the buying force can be immediately accentuated with the covering of short positions. That is why knowing what each individual signal might produce is highly advantageous for getting into a position immediately upon a reversal. This early entry allows the candlestick investor to take advantage of the initial buying spree that may be caused by short covering.

What can be expected after a Bullish Engulfing signal occurs at a major moving average? Note in the Dow chart, a small Bullish Engulfing signal after a Doji. This in itself suggests possible bullish activity. When you add the fact that it was occurring at the 50 day moving average, anticipating what the market should do the following day becomes fairly simple. Bullish futures, premarket, demonstrate the Bulls are continuing into the next day, confirming the candlestick signal that formed at the 50 day moving average.

DOW

Having the confidence of knowing what should happen with a high probability following a bullish signal allows investors to start establishing positions immediately. Will a bullish signal in the Dow always produce a 250 point move? Obviously not, but the combination of bullish signals at major support levels, followed with confirmation, creates a good-probability situation that there will be a bullish move.

Whether you are a day trader or a long-term investor, you gain great advantage by knowing which patterns and signals are going to produce high probabilities of a profitable trade. That does not necessarily mean that each trade is going to be a large profit, however it does put you into situations that have the potential of being a big price move. The more you can develop your analytical abilities for eliminating bad trades and placing your funds in good trades, the better the probabilities of producing consistent profits.

PDS

Most investors want somebody to tell them where the right place is to put their funds. This dependency will constantly keep an investor from improving their returns. Candlestick signals have a proven track record. Whether you utilize all the signals and patterns available or you specialize in just a few of those signals and patterns, you will come away with a trading program that greatly enhances your ability to be in the right positions at the right time.

This becomes more pronounced when trading options. The combination of knowing what the signals represent and knowing which option strategies are most successful for specific situations provides an extremely powerful investment program. There are 50 to 60 candlestick signals. Concentrating your efforts on the 12 major signals will eliminate a lot of needless time wasted on some signals that very rarely appear. Keep your investment strategy simple. Many successful investors make a very good living by specializing in one or two signals or price patterns. You can easily make inordinate returns by learning specific signals and patterns. Take advantage of the information the Japanese Rice traders have discovered are built into the signals. Investor sentiment has not changed for thousands of years and will not change for thousands of years in the future.

Online training session - April 19 and 20th, this coming weekend, the Candlestick forum presents a two day comprehensive candlestick training program. Steve Bigalow provides a very orderly method for learning how to use candlestick signals effectively. Wouldn't you like to be able to analyze any market successfully for the rest of your life? This is what you gain by knowing what information is built into each signal. Rick Saddler can dramatically improve your correct trade ratio. His research has discovered technical indicators when applied the candlestick signals dramatically improve the probabilities of being in a profitable trade. Do not miss this opportunity to gain an immense amount of knowledge that you can use for the rest of your life. There are only two spaces left for this weekend. Stay in your pajamas, drink beer, and have a writing pad on your desk. That is all you will need to greatly improve your investment abilities. Click here for more details.

Chat session tonight at 8 p.m. ET. Click here for instructions.

Good investing,

The Candlestick Forum Team

Scanning Techniques to Higher Profits

Once taught only to Steve's private clients; Now available on downloadable video.