Good Penny Srocks - The Secret To Spotting Good Penny Stocks And Avoiding Catastrophe

Finding good penny stocks is an intense pre-occupation of many stock market participants (and for many important reasons too). Investors and traders love penny stocks because they cost very little and tend to give massive returns when they react to relavent news flow. On the flip side of the coin though, many investors have lost their shirts as high reward also means high risk and penny stocks are no different in that regard. So, in order to benifit from the massive opportunity that penny stocks represent it is important to be able to spot good penny stocks but even more importantly one must be able to have a clear cut and disciplined strategy with the aim of minimizing losses and maximizing profits.

Now as easy it sounds, such a strategy is never as easy to enforce. You would have to be completely disconnected from the world if you didn't know how so many people have lost so much in the stock market. Like a black hole the equity markets have sucked dry many investors and traders whether they dabbled in monster sized companies or medium sized companies or peanut sized companies. But as we weigh out both sides of the story, the fact remains that the stock market creates the most fortunes and has been consistently doing so for a while now. Meaning that it is definitely possible to minimise losses and maximise profits, provided you learn how to manage risk.

So below are the pointers I use for selecting good penny stocks and coming up with an effective risk management policy. They have served me well over the years and you can apply them to stocks of companies of all sizes. I just favor penny stocks because they offer the ability to generate first-class profits with lesser resources and the same amount of effort.

1. Finding good penny stocks is related to analyzing data about the stock. Now lack of good information is one of the biggest hurdles to deal with, when trying to discover great penny stocks. The concept here is very simple, the more you know about something (in this case a penny stock), the better you can judge the risk in it and that way make a qualified call. And if the data of a particular company is really hard to come by then the best thing to do is skip it. The fact of the matter is that there are tons of penny stocks out there, so it is better to focus on the ones which offer clarity rather than the ones which don't.

2. All stocks, penny or otherwise respond with respect to certain events popularly known as triggers. Stocks react, negatively or positively, in anticipation of their trigger events. Pay close attention, I said "anticipation". Now this is very important. Buying a stock post the event causing the news flow can be dissapointing because by the time the event comes to pass the stock would have already done its bit. In most circumstances, right after the event the stock price of a penny stock can drop drastically as traders and investors book profits and more so if they have had good results. So this period can be very risky. So, when trying to pick good penny stocks be alert.

3. The process of discovering good penny stocks goes deeper than doing a company and news flow analysis. It also involves determining key data points like the entry price, exit price and the price of the stop loss for protection (in the event that the stock behaves outside your expectations). Without a stop loss your risk will be unlimited and thus it is key. You will be able to determine these data points by looking at the technical charts of the penny stock you are interested in. Pay special attention to trade volumes as they'll help you piece together the puzzle more accurately. If the company has only recently floated on to the exchange then these data points are extremely hard or impossible to plot. So it is best to stay away.

I am sure by now you understand that investing in penny stocks and other securities is quite complicated. Cherry picking good penny stocks requires good experience and know how, all of which takes time. But there is a solution. The wiser thing to do is to trade alongside a successful trader who can back himself up. Thus, recommending good penny stocks, calculating the relavent trading points would be his or her domain and consequently you would benifit from his or her ability to pick consistent top performers.