Which Penny Stocks to Buy: 4 Winning Indicators

If you’re like many stock investors, deciding which penny stocks to buy consumes a large portion of your time and may even prevent you from investing at all. I think many simply walk away from investing in general because they can’t make a decision.

With this in mind, I want to present you with 4 winning indicators for penny stocks that I look for before doing any penny stock trading. This isn’t some guaranteed winning stock pick checklist by any stretch. Instead, it’s a way of filtering out all the junk and stocks that really aren’t viable options. You’ll still be left with decisions to make, but those investment decisions should be far easier.

Let’s jump right into it.

Buying Penny Stocks 1: Share Volume

This is an easy, no brain required function to perform. Simply put, you need to be able to get into and out of a stock instantly (or close to it) without any problem. I don’t care how much “potential” a stock possesses. If I can’t get out of the deal quickly, I don’t get in ever.

Rules can vary, but I’ll never buy a stock if I’m going to own more than 2% of its average daily volume (and that’s pushing it). So if I want 1,000 total shares eventually and the stock has an ADV of 10,000, I’m out. I’d want to see at least 50,000 ADV and would be more comfortable seeing figures north of 100,000.

Buying Penny Stocks 2: Company Information

This may take a little work given that penny stock companies are smaller, but it’s not negotiable for me. I must be able to track down company information otherwise I don’t buy the company’s stock. It’s amazing how many penny stock traders just jump from stock to stock without any research.

I’m not saying you need to know every little bit about the company, but at the very least you should verify that the company exists and is in operation. Use your favorite search engine and look for information from not just the company site, but reputable sources.

Buying Penny Stocks 3: Volatility

Don’t buy penny stocks that sit there all day long, every day. If the stock isn’t going to move, you’re just making your stock broker richer through commissions as you get bored and move stock to stock. Nothing wrong with sharing the love with your broker, but you better be getting your dessert too.

How much volatility you require depends on your holding pattern. For example, if you’re looking to day trade penny stocks, you want stocks that are extremely volatile. However, if you’re trading and willing to hold a stock for say a couple weeks, you just need a little movement.

Either way, don’t gamble on penny stocks that aren’t moving. There’s no reason to try to guess. If you don’t see action, move along.

Buying Penny Stocks 4: Look for Trends

I think it comes from Las Vegas or something, but there’s this natural tendency in people to fight trends. Despite the fact that the wealthiest people embrace trends, the poorest continue to fight them. Yes, what goes up might be coming back down and vise versa, but it might not happen right now and there’s no special cookie you get for being right.

Let me give you a perfect example to follow. Stock XYZ is somehow upward fast. It’s up from 50 cents a share to $2 per share now. The losing penny stocks trader (read: most people) will say to himself or herself that it’s coming down and buy at $2 per share. Why? It’s going up. Does this make any sense? Of course not. The problem is people think they have to predict trends and be first to make money. This is laughable. So what happens? Stock XYZ continues to go up, the trader is married to the stock and is now crying because it’s at $3 per share and still going up.

Look, it’s perfectly valid to think this stock is coming back down. But, don’t jump the gun. Wait for it to actually start coming down, get confirmation and take your little slice of the pie.

I’ve invested on trends many, many times. I always go with the trends. And if I think the trend might end soon, I just kick back and wait for the opposite trend to establish itself. If you fight trends, the penny stocks you buy will be losers more often than they are winners.

I know you might have been looking for specific penny stocks to buy, but understanding what to look for is far more valuable than combing the Internet looking for the latest hot penny stock picks, which may or may not be viable. Learn the fundamentals and you won’t struggle with which penny stocks to buy in the future.