By Keith Guyette

Trading the low priced micro caps, penny stocks, or pink sheets is a ‘High Risk High Reward’ style of trading. I have found that one of the most profitable ways to trade these penny stocks is by finding the bottoms. If you are correct and find the bottom, the stock has nowhere to go but up. If you are wrong and miss the bottom, no one wants to ‘catch a falling knife’.

When a penny stock is bottoming, it has dropped to a new recent low. This could be as dramatic as the lowest price in years or something as simple as a 50% pullback from recent highs. At this point the stock may begin to stabilize (trade sideways). This could mean that your penny stock is now poised to rise again in price, but it could also be preparing for another move lower.

When you buy micro caps, penny stocks, or pink sheets it is always easy to find charts that look like they’re at their bottoms. It seems that every night we are analyzing a hundred different penny stocks that have recently broken their downtrend. If you are unsure of how to find stocks in up trends or downtrends, try a stock screener.

Once you think you’ve found a penny stock that is technically ready to begin that profitable trend to new highs, it is now time to do your homework. Fundamentally there are many things to look for. There are so many that I can only give you a brief overview. You will want to read the filings and recent news to understand the companies share structure, current operation, and if there are any future events that may cause the stock to rise. Some of the more important items you will be searching for in the filings are operating shares, authorized shares, float and warrants. One of my favorite items to look for in penny stocks is a strong share structure and an upcoming event. You can then buy the penny stock before recent news is released on the stock and you have shares before the hype and excitement.

When you find penny stocks that are bottoming with a solid share structure and is due to release great news, such as a new product or strong earnings. This is probably a good time to buy. Prepare to hold on, stocks in this market have been known to rise thousands of percentage points in a short amount of time.

Trading penny stocks based on penny stock picks can be a dangerous proposition. Although often these stocks rise to great heights, they often crash unexpectedly leaving the late buyers “holding the bag” it doesn’t hurt to get ideas from these pumps and sometimes enter them. Honestly though, its hard to find a bottom on a penny stock that is being hyped up already. Good luck in the market it is a lot of fun but can take your money very quickly.

About the Author: Keith Guyette is the author of this and many other stock trading articles. He has been trading

penny stocks

for many years. Besides sharing his

penny stock picks

there is a wealth of information for traders looking to

buy penny stocks

.

Source:

isnare.com

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