Penny Stock Success: Doing Your Research Before You Trade

canstockphoto0278465Penny stocks are an area of finance most financial advisors won’t touch, and most investors dare not tread. There’s a good reason for that: They’re risky. Inherently risky. You can lose your entire life savings if you’re not careful.

But you can also make a fortune. Here’s how the pros do it.

Finding Stocks Before They Skyrocket

You want to find the penny stocks that are going to explode before they actually do so. There’s a few good ways to do that. One way is to read Money Morning online for more details about stocks that are trending right now.

But, that should be just the beginning of your research. You need to be able to tell when a stock is going to bottom out and when it will peak. That’s all there is to it. Get in low, and sell high.

Piggybacking On Stocks That Have Already Spiked

There’s a trick to getting on a stock that’s about to spike, and that is to find a stock that’s already moving in the direction you want it to move. If a stock has been trending up for several days, it’s a good bet that it will continue for a while longer. And, while you might not get in at the bottom, you can get in near it. And, that is usually good enough.

Find Breakouts

Professionals are always looking for new stocks that are breaking into new highs. Stocks that are still up on the day and going strong through morning trading are good bets. You do have to be careful when basing your trades on this kind of activity, however. If you see a play on a Friday afternoon, and the stock is looking good well into the afternoon, you could get squeezed at the close of the day and not recover because of the weekend.

So, Friday’s are the exception to the rule.

Buy On Price Action

A lot of traders try to predict spikes. They will search their favorite chat room to see who is chasing which stocks. And, they’ll try to figure out what’s moving and how high and when. Some people look to stock “gurus” to tell them what to do, when to buy, and when to sell.

And, while not all chat rooms are bad, many of them are. And, at the end of the day, you are just engaging in a conversation with other traders, and would-be traders in these chat rooms. What you want to buy (and sell) on is the stock’s price action. When a stock is moving to a new high, it’s a good bet that this is the stock you want to profit from. You won’t find this information in the news. You only find it by watching the stock.

Research Stocks You Want To Buy

Now, you don’t have to get academic with your research. But, a big reason many stock traders don’t make money is because they’re lazy. They don’t want to research a company before they buy it.

They want someone else to tell them what to do, and when to get out. There’s an inherent problem with that: when a “guru” blasts out a trade recommendation to a list, a lot of what will make or break the trader is in how fast the information gets to him or her, and how fast he or she can act on that information.

Usually, what happens is that by the time an investor gets the investment or trade alert, thousands of other people have already acted on the advice. The late comers can’t get into a trade fast enough, and at a sufficient volume, to make the trade profitable.


While it’s not impossible to make money in penny stocks, many investors would do well not to try it. For those who are brave enough to invest in this tricky area, make sure you get yourself a fast Internet connection (pay extra for the best speed you can afford or that’s available), get a reliable and fast email host, and make sure that the advice you’re getting is fresh.
This cannot be overstated. With penny stocks, the newer the advice, the better. Ideally, you want trading recommendations within seconds of the advice being formulated. When a trend starts, you need that information immediately because traders will immediately start trading on it. And, if they do, they will quickly work to erase that trend, which is how they profit.
If you’re the last on “in” on the trade, you make no money.


Evie Jones is working hard to secure her future through investing. Recently leaping into penny stocks, she wants to share her knowledge with others. Look out for her articles on investment and personal finance blogs.