Over time, the penny stock trader will learn which stocks have potential and which ones do not have potential. Profit and loss statements, amount of debt, various ratios and ultimately the company bottom line. Fundamentally, acquiring as much information as possible about the company can give the trader an idea of the financial condition of the company and determine if they can implement their business plan.
Building a list of penny stocks that have potential to increase in share price is difficult partly because companies trading on the Pink Sheet exchange are not transparent allowing investors to see financial statements and other aspects of the company. The Over the Counter Bulletin Board exchange requires companies to file Securities and Exchange Commission financial reports quarterly which allows for more transparency. Unfortunately, this happens more often than it should because one of the characteristics of penny stocks that draws people in, is their low share price. If at all possible, it is best to refrain from trading Pink Sheet stocks and focus on OTCBB securities until a complete understanding of penny stocks is attained. Eventually the trader will build a list of penny stocks that have the best possibility of gaining in value and will soon have a core of penny stocks that can be bought and sold many times over once the trader learns their fundamental and technical characteristics.Trading stocks on the Over the Counter Bulletin Board or Pink Sheet stock exchanges is probably the riskiest of all forms of trading. This makes OTCBB stocks less risky than Pink Sheet Stocks.
It is best to first differentiate between varying sectors within the market itself and determine which sectors may be in favor when building a penny stock list.
However, a combination of both camps is ideal for trading smaller stocks utilizing both methods when building a list of penny stocks. With the potential of astronomical gains, penny stocks have drawn many people into the world of speculation, often with disastrous results.
However, trading penny stocks does not always equate to losing all funds in brokerage accounts. Investors and traders usually break down into two different groups, one being technical and the other being fundamental. Fundamental traders rely on the financial aspects of the company. These two camps are uniquely different and seldom will you find a combination of both trading the larger exchanges with both being adherents to their methodology.
Once a sufficient amount of testing has been completed, finding potential securities to trade is the next step. By reading chart patterns, support and resistance levels as well as other indictors can help the trader learn how the stock trades which helps determine the technical character of the stock. If a person, new to these stock exchanges, spends time acquiring knowledge and learning how micro-cap securities trade, they are on the way to potential profits. Technical traders rely solely on charts, trading patterns, oscillators and various other indicators aluminum laser cutting to determine which stocks to trade. Once favorable sectors have been determined, it is time to begin screening potential stocks to add to the list. This fact alone is the number one factor why people that cannot afford to lose money in the stock market begin trading penny stocks; minimal cost per share. Implementing and testing a trading system designed specifically for trading penny stocks is the first piece of the puzzle