How to Pick Winning Penny Stocks

Penny stocks are the type of stocks that get sold at very low prices. These stocks sell below Rs. 10 per share and belong to companies that have extremely low capitalization in the market.

The stocks’ low price always attracts investors, but it is essential to understand that these stocks have a high risk that leads to huge premiums for market makers.

How to Pick Penny Stocks?

Here is a simple guide to picking the right penny stock:

• Check if the Penny Stock is Right For You

There are penny stocks sold at low prices, but they can bounce back and increase in the future. Hence, you must place your money into penny stocks with those funds that you can afford to risk losing.

• Understand the Conditions of the Market

Since the prices of penny stocks are unstable, you need to follow some financial specialists or stock advisors as they understand the business very well. With their guidance, you can avoid stumbles and get noteworthy returns.

• Research the Company

There can be various misleading advertisements by way of bogus and deluding data done by people who buy huge amounts of stocks. Hence, you should always research the company through financial specialists.

• Understand the Valuation and Price of Shares

The price of the stock will tell you about the company’s current value in the market. Before investing in penny stocks, you can investigate the company’s financial statements and then determine its value.

• Practice Day Trading with Paper Trading

Before moving to penny stocks, get some actual practice to know more about the trading practices. Paper trading is typically a way to understand the trading strategies and check whether it would be paid off or not in reality. You can do this using demo accounts.

• Don’t Fall into the Trap of Constant Dilution

Whenever a company issues some additional stock, it reduces the value of the shares of existing investors and their ownership of the company. Hence, you need to be aware of the dilution effect on the value of shares.

• Understand Your Investment Horizon

Before investing, you first need to understand the development of funds at a particular time. There have been instances of price control in penny stocks. The key idea must be that your investment must match your particular objectives and should focus on insights.

• Monitor All Your Investments Regularly 

While making investments in particular stocks, it is advisable to make a common fund review once in a while. You should check it to see whether its administration and execution are done as per your decided objective.