In the 1 year and 2 months that we have been doing business, we have been asked countless times, what it is that one should loo for, when looking to invest in penny stocks. In this short time period in which we have been on the scene, our subscribers have seen profit potential of more than 220,000%, by adhering to various key aspects that the majority of our big winners have embodied. Without delving into the deep technical aspects, with regard to trading, being that there are countless things that one can look for, here are some of the key aspects that you will want to take to heart:

1. The Stock Has Been trading for some notable stretch of time

Don’t be too quick to dive straight into a penny stock that has just entered the market. If you look into the past pricing history of a penny stock, it will most often be the case, that you see that when it was initially introduced to the market, its price was far greater than the duldrums that it has slipped into today. The last thing you want to do is dive straight into a stock that is trading in the mid dollar, to multiple dollar range, only to see it swiftly become a penny stock. Take your time, step back, and give a company to adjust to the market for a little while before taking a major risk, so that the price can correct itself accordingly. Though there is always the possibility that a stock can be introduced to the markets and just continue on upward, it is more often the case that biding your time a bit, will treat you better overall, in the long run.

2. History of Reverse Splits

If there is anything you want to avoid, it is a company that has a long history of selling massive amounts of its own shares, against the interests of its own investors. A tell-tale sign of such blatant disrespect toward shareholders is that of a long history of reverse splits. The majority of the time that investors cry out that a company is diluting, there is actually no factual evidence; after all sales could be coming from anyone that happened to purchase shares on the open market.

Reverse Split: A reverse split, is a situation in which a company splits it’s shares by a means that increases the worth of your shares, on a per share basis but simultaneously decreases the amount of shares that you hold, by the same margin. With that said, if you hold 100 shares of a company that is $1, that is a $100 value. If that same company performs a reverse split and their shares are now worth $100 per share, at face value, you may initially be thinking that you have multiplied your investment 100 times but in reality at the same time as the worth per share being multiplied by 100, the amount of shares that you own has been divided by 100 so you now have 1 share at $100.

What is the problem with this? Well, think of it this way: If people weren’t buying the lower priced shares before, what is to entice them to buy the exorbitantly higher priced shares now? Discovering a pattern of past reverse splits, generally suggests that the company is just selling shares and splitting them over and over again, to convince new buyers to come in. If there is a history of this happening, stay away, or at the very least, operate with extreme caution.

3. Well Managed Share Structure

If you are investing in penny stocks, “share structure” is going to prove to be one of the most important aspects of your financial journey. There are numerous aspects to delve into, within the realm of share structure but the most immediately important one for you, at first glance, will be the, “float.” The float is the amount of shares that are available to be traded within a company. The greater the amount of shares there are in the float, the more difficult it will be to see positive price accumulation because more shares, means more people out there looking to sell their own shares.

A good way to look at this is by imagining trying to buy all the shares of something that has ten shares and ten shareholders. To purchase the entire company, you have to purchase all 10 shares. Now imagine each person is selling their share for dollar amounts 1-10, with the first being $1, second being $2, 3^rd being three, etc. Well to buy the entire company it would cost you 1+2+3+4+5+6+7+8+9+10 = $55. Not so bad and each time you purchased one persons share, the price moved up by $1. Now imagine there are 1 million people with shares, each selling at a random price $1-10, because of their being so many more people selling at these levels, it will be far more difficult to see the price move as you buy up shares to get to the higher seller levels. It is for this reason that you do not want a stock with too many shares because the price can become stagnant. At the same token, you also do not want one with a very small amount because the price fluctuations can get to be too intense with their wild swings. We generally look for one from 50 million – 800 million. Though seemingly high amounts, considering the scenario that we just cited above, this range has provided us with the greatest amount of winners over time.

Pennystockdream.com and its employees are not registered as Investment Advisers in any jurisdiction whatsoever. We encourage all of those that are interested in trading penny stocks, or any other form of investment, to conduct their own research to garner a better understanding of what they are getting involved in. Be sure to read the full pennystockdream.com disclaimer at: http://pennystockdream.com/disclaimer.