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How to Trade and Pick Penny Stocks

Posted by :: Planet Penny Stocks on Jun 25, 2011

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as “the slot machines of the equity market” because of the risks involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow these steps.

Understand why penny stocks are considered a dangerous investment. Penny stocks are among the most volatile and most manipulated form of investment in the stock market. The companies usually have no track record of solid financial performance. In addition, the stocks are often manipulated by scam artists.

Get at least one year’s experience with mid- and large-cap stocks first. You should become adept at reading a balance sheet, income statement, and cash flow statement during this time.

Look for companies that have consistently generated cash and are growing their free cash flow over time.Avoid companies with a heavy debt load.

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