Penny stocks can be some of the best trading vehicles that exist. Their volatile nature provides you with ample opportunity for either large gains or large losses. This is due to the fact that a penny stock can easily swing 10%, 20%, 50% or even 100% in a given day. The key is obviously choosing the right stocks. Which stocks will give you the 20% gain in a few days rather than a 20% loss? In other words, what are the best penny stocks to buy?
For those of you new to penny stocks, they are any stock that is trading at $5 or less per share. They can trade on any exchange although some only think of penny stocks that trade on the Pink Sheets or the Over-The-Counter Bulletin Board. Those two sources definitely contain penny stocks although the majority of the penny stocks that I trade are listed on the NASDAQ or AMEX stock exchanges. I feel more comfortable with these companies due to the listing requirements of the exchanges and a higher level of trust with their quarterly earnings reports.
Since penny stocks are cheaper investments it will allow you to buy larger chunks of shares. Most of my penny stock purchases will be at least 1000 shares of stock. This allows you to get more bang for your investment dollar. A 20 cent move will result in a $200 profit to you (minus commissions). If you only had 100 shares that same move would only yield $20. In fact, after commissions you have not done much more than break even.
Many people are looking for the best penny stocks to buy. Often times when they are searching out this information they are thinking that they are going to buy a penny stock and hold in for a number of months and then turn a large profit at the end. However, in the time that I have been trading penny stocks, I have found them to be better short term trading opportunities rather than longer term holds. You never quite know where a penny stock is headed long term. It is much better to take advantage of the swings in share price that they provide you on a regular basis.
With that being said the best penny stocks to buy are those that are establishing new upward trends. I have found that the best way to determine this is to buy penny stocks that have broken out to a recent new high on better than average volume. Normally there is a follow through with these types of stocks. If the breakout was too large for your comfort level then the second best strategy for buying penny stocks is to wait for the pullback following the breakout. Normally, you would look for a pullback to a significant moving average (20, 40, or 50). These two penny stock strategies alone could make you a lot of money if you follow them closely.
But how do you know which stocks are breaking out. You can depend on penny stock trading services that will give you an alert but I prefer to do things my own way. I prefer to spend $10 per month on a service like StockFetcher.com that will allow me to write a little query that can find stocks that appear to be breaking out. I filter through these each day and purchase the ones that look like a good trading opportunity.
The best penny stocks to buy are those that are presenting you with a positive setup for a short term trading opportunity. If you refine your system and use discipline for you stock entries and exits you can make a lot of money trading penny stocks.