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How to Profit in the Stock Market with Penny Stocks

What are Penny Stocks?

According to the official SEC definition, a penny stock is a low-priced stock of a very small company. In the U.S. stock markets, penny stocks commonly means stocks that trade for less than $5 a share, have market capitalization under $500M and are traded over the counter.

The Pros and Cons of Investing in Penny Stocks

Many new investors are attracted to penny stock due to the low price and potential for rapid growth (which may be as high as several hundred percent in a short period). However, investors must be warned that investing in penny stocks involve high risks; including limited liquidity in the stock (thus making the penny stock susceptible to price manipulation) and lack of financial reporting by the company. Because penny stocks tend to have a smaller number of investors, a moderate amount of buying/selling by a single investor can sometimes cause the price to spike, making the penny stock highly volatile at times.

However, on the other hand, because of such volatility, a penny stock can prove to be very profitable, especially if there is a sudden interest in the stock. For instance, the price of a penny stock can rise sharply in a very short timeframe if there is speculation that the company is a candidate for a takeover bid at a price considerably higher than the current share price.

How to find profitable penny stocks?

I consider penny stocks to be highly speculative, something I buy due to the potential of high profits in a short period of time. Hence, I advocate using only technical analysis to look for penny stocks, so that one can buy into a profitable stock quickly. In fact, I subscribe to a newsletter that makes recommendations for profitable penny stocks. This newsletter uses a trading robot (i.e. a computer software), Marl, to analyze various aspects of a penny stock, including: volume traded, support and resistance levels, trend reversals patterns, consolidation patterns and channels.

Marl is the first commercially available trading robot developed by 2 "geeks", Michael and Carl. Michael, the computer programmer who developed the famous "Global Alpha" computer stock trading model while contracted to Goldman Sachs, teamed up with fund manager Carl Williamson to create the robot.

Note: Even though I've made money buying the stocks recommended by the newsletter, I must warn you in advance should you decide to subscribe:

1.Penny stocks trading is highly speculative in nature. Do not invest your entire account on them. Personally, I never invest more than 10% of my available investment funds on penny stocks.

2.Penny stocks trading is not suitable for everybody. Some may find the stocks too volatile (in terms of the percentage change) and thus too much of a emotional roller coaster, something not everyone can cope well with. Thus, I recommend you try out the newsletter first to determine if it is suitable for you.

Article Source: http://www.articlemap.com

Joelle has more than 5 years of experience investing in the stock market and has successfully used various strategies to consistently make money in the stock market. For more tips and techniques on making money in the stock market, visit how-to-invest-in-stocks.blogspot.com.

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