Penny Stock Brokers 4u

Of all the advice given regarding investing in the ultra-risky penny stock, one of the most important and easiest to understand is the advice to only invest in high volume penny stocks. Trading volume is the number of shares that has traded hands during a specified period, usually one trading day. If the volume is high it generally means that there are a number of investors paying attention to that stock and that it is changing hands from investor to investor thus giving you an idea of how many investors are involved. If you purchase a stock that is not trading much then you will most likely have trouble when you are ready to sell it in that nobody is particularly interested in buying it which will mean you will not be able to sell it at all or at a much reduced price.

Besides having a high volume, you must also review a period of time to see that the high volume is consistent. If it is just high here and there it may indicate that just one or two insiders are buying and selling to drive up the price and the volume to make the stock look more attractive that it actually is. Thus part of your due diligence is always to look at the whole picture rather than just a snapshot. It is rather like buying a property based on the beauty of the foliage in the summer only to find out it is not accessible by vehicle or under water for the rest of the year.

Another reason to look toward high volume penny stocks is that this is where you will generally see more price variation due to the natural laws of suppy and demand. As you review the highs and lows of the volume levels you should review the price corelation as well. How much of a price jump did it take to make the higher volume figures? At what price did the volume drop off? It may be difficult to ascertain a true pattern but again that is where looking at a broader time period will help clear the muddy waters for you.

So, thus far it would seem that if you stick to high volume penny stocks you will succeed. Well, not necessarily. Besides the other obvious issues with penny stocks, when looking at a high volume stock you must also look into its market depth. Market depth is how the stock is known on the stock market and in their industry – basically how long they have been around and to what degree they are taken seriously.  A savvy scam artist can drive volume numbers up by making numerous trades, touting the stock through message boards and chat rooms, paying advisors to promote it and any number of ways to get word around that it is a “hot pick” which will give the impression that the stock has market depth but some prudent investigation will prove it does not.

Another deceiving thing about volume is using the same considerations as you would for other stocks. Consider that a volume of a million shares of a penny stock selling for $.50 is only $500,000 whereas a million shares of a stock selling at $25 is a whopping $25 million!  Even a ten million volume for a micro-cap stock trading at $.05 is only $500,000. Thus you would need to consider the trading price and figure out just what would make that particular stock a true high volume stock.

Once you have chosen a couple of penny stocks for your portfolio, your work is far from over – in fact it is just beginning. You have to keep up with monitoring your portfolio carefully, including its price, news from the company and in the industry as well as its volume. Further investigate any changes in volume because it may be either time to sell if indications are in place that it may start to fall, or buy more shares if it is looking to take off. Not all increases in volume mean a take off and not all decreases mean it is headed down, so you have to work to determine the causes. Just as it makes no sense to catch a dropping knife, so too can it be foolhardy to sell off something that dropped a little only to see it rebound the next day. Learn its patterns so that you can best spot a deviation from the norm. Always keep in mind the goals you set for it as well so that you do not fall victim to decision making based on emotion or greed.

A word on finding high volume stocks for your portfolio – there are a number of websites on the Internet that you can look at that will list the stocks that have had the most trading in any given day. Some list them each day at no charge while others will give you real time alerts for a monthly or annual subscription fee. When you see a site offering a service at a fee, be sure to research whether you are truly getting something unique for that fee or something you could obtain via an Internet search on your own at absolutely no cost. There will always be people out there looking to fatten their wallets on people that do not take the time to find out the information they seek is free for the asking.

If you already have a portfolio with a stock broker, by all means ask them what information you can get from them. Even though not all full-service brokerages will handle penny stock transactions, they should still be able to provide you with volume information and perhaps access to their database of historical information so that you can do your homework on your own.

So, while looking at volume can be a good indicator of a less risky penny stock, always look carefully at what that volume actually means and what else is going on with that company. Doing your homework can make the difference between making some money or losing your shirt.