Penny Stocks To Watch 2011

If you are trading penny stocks, you always need to know the penny stocks to watch. Penny stocks are low-cost shares with a face value of $5 or less or some define them as having a value of $1 or less. They are usually traded outside the major stock exchanges, and tend to attract large numbers of investors because they seem to promise a high profit potential for a very small investment. However, if you want to trade in these stocks, you need to realize that they also carry a high degree of risk.

Risk Factors

One reason these shares are seen as more risky is that there is often a low trading volume that is, small numbers of shares being traded on a daily basis. Fluctuations in demand and supply could cause shares to lose or gain value very quickly. In addition, their listing is not regulated in the same way as the shares of companies listed with the major stock exchanges, which have to provide information proving their financial stability in order to be listed. They are likely to be listed with exchanges such as Pink Sheets and OTCBB (Over the Counter Bulletin Board), which are available to companies that are not properly audited, and may be in financial difficulties or even bankrupt.

Knowing What To Avoid

If you need to know the penny stocks to watch, you first need to know the ones to avoid. One example is a stock that has been seeing a dramatic drop. The temptation is always to think that this is a good time to get in there, and it can only go up, but in fact, the fall is more likely to be a sign of serious problems in the company, from which it might not recover. Another type to avoid is low volume stocks, which are stocks where there are very few trades on a given day. This could make it very hard to get in or out at the price you want. A third situation to avoid is where there has been a series of very hot tips that there is to be a dramatic rise. These rumors can be deliberately put about by people for their own gain, and in fact if shares were seriously on the rise you probably would not hear about it.

What To Look Out For

So how do you decide which are the hot penny stocks to watch? In the first place, just as you avoid shares with low trading volume, the converse is also true that is, you look for a sufficient average daily volume to ensure liquidity, which means about one hundred thousand. A second pointer is a high level of insider ownership. If a good proportion of the stock is owned by the management of the company, they have a stake in keeping the price at a good level. Another criterion is a positive earnings report whichever way earnings are going the share price will follow. In addition, just as you should avoid shares that are dropping to rock bottom, so you should watch for shares that are on a rising trend. If you can confirm the trend by using chart analysis, you should be on pretty safe ground.

Fast Moving

When considering penny stocks to watch 2011, remember penny shares move much faster than ordinary shares, owing to the lower volume. A stock can change direction almost overnight. Keep your eye on the pattern of lows and highs, you should be successful in finding the penny stocks to watch.