Penny stocks are a very popular topic within investing communities.
Many people have been successful by trading penny stocks, however just as many have lost money from it as well.
To best understand how to trade penny stocks there are certain key factors you should know about first.
If you’re looking for the best penny stocks then use the following criteria to find them.
1. Volume of the best penny stocks
The best penny stocks are highly liquid; you want to be buying and selling quickly if using intraday trading strategies. The ideal volume is about 500,000 shares traded daily or more during active market hours (9:30 AM EST to 4 PM EST). The best stocks to buy now totally depends on the volume you are buying.
As volume is a very important factor to look at when finding the best penny stocks because you want to be trading the most liquid shares with higher volume and less volatility. That will give you more opportunities to profit off of your trades.
2. Market capitalization best penny stocks
The best penny stocks are micro caps, which you can define as having a market capitalization under $300 million.
You want to avoid the best penny stocks that trade over $1 billion because they are too expensive for what you get in return. They tend to have less upside potential due to their size and it is more difficult to accumulate enough shares without significantly affecting the share price.
3. The best penny stocks have insiders buying
The best penny stocks are those where company executives are buying shares with their own money. This is a bullish sign that management believes in the future of their company and its stock price. If they believe there is more value yet to be released then you should too.
Insiders know best about their company, so the best penny stocks are those where insiders are buying shares.
4. The best penny stocks have a history of insider buying
The best penny stocks are those that show insider buying over the past year. Best penny stocks need to have at least 2-3 distinct insiders making bulk purchases throughout the year.
Because best penny stocks that only have 1 purchase made by one insider at the beginning of the year likely means they are trying to get in cheap on their own accord. The best penny stocks are those where multiple insiders each contribute bulk purchases at different times throughout the year. That reflects management’s understanding that buying their company stock benefits shareholders and benefits management.
5. You should best penny stocks in a bull market
The best penny stocks can be traded in any market, however, it’s best to best penny stocks in a bull market where the best penny stocks show a history of share price appreciation and higher volatility.
The best time to buy the best penny stock is when the entire market is performing well, the best penny stocks perform best under those conditions. That’s because best penny stock traders are more excited to be trading, which results in best penny stocks experiencing higher volume and volatility throughout the day.
6. Find best penny stocks at support levels
The best penny stocks trade like any other share; they follow the trend of the overall market and best penny stocks in a bear market.
That said, best penny stocks do best when they are at or approaching their 52-week lows; best penny stock traders want to buy best penny stocks when they appear to be reaching the bottom of their current trend and bounce back up.
Tip: You should only invest in the best penny stocks when they show signs of a potential upswing.