Penny stock investing starts before you even purchase the first share. The actual process begins as soon as you start to research which stock you're thinking of buying. Since penny stocks are easier to manipulate than major stocks, you need to be careful and put some thought and research into deciding which penny stock is right for you.
While there's no guaranteed way to know exactly which stock is going to become a huge financial success, there are some things that you can do to help yourself have a bit more success on the penny stock market. There are many penny stock brokers who specialize in penny stocks, and consulting with one of them may be your best option. Short of that, there are some things to watch for.
First, remember again that penny stock investing should be thought of as a short term type of investing, since your risks increase the longer you keep your stock.
One of the best things that you can do is to find a trustworthy penny stock newsletter or a regularly updated list of suggested penny stock picks and follow it like a religion. These lists and newsletters are written by seasoned pros in the penny stock exchange and their suggestions, when followed closely, can really pay off for you.
Letting the professionals use their years of experience can help you not only make smart investments, but learn the techniques that they use to make smart decisions.
One of the most important ratios that are used in the stock market is the REO, or 'return on equity'. REO is determined by dividing the net income of a company by the amount of shareholder's equity associated with it. The higher it is, the better the chances that the stock has a good quality.
Watching the price trends of a penny stock over the course of a few days is also a good idea. If it's posting regular gains, it may be building up momentum. This could level off, so it's important to watch it closely after you make a purchase.
Remember what we mentioned about how penny stock investing is mainly made up of short term investments? That could be a matter of a couple of days in the penny stock market.
Obviously, there is a lot to consider when investing in any kind of stock, even penny stocks. Depending on the company you're looking at, outside factors could come into play to contribute to the success or failure of its stock. These could be anything from a sudden technological breakthrough to a natural disaster, either of which could hurt or help a company depending upon what they do.
Careful research, trustworthy advice, and keeping a close eye on your investments are the very basic elements of penny stock investing.