Penny stocks can be both perilous and highly profitable. Due to the volatility in penny stock prices it really is possible to make overnight fortunes with penny stocks. There is more than one story of a trader starting with only a few thousand dollars and turning it into a mid six figure bank roll within a couple of years. If you would like to join there ranks first you need to learn how to play penny stocks.

One of the best ways to play penny stocks is to look for quality companies with good management and great growth prospects. While some traders will essentially trade any penny stock as long as it makes them money this can be a risky strategy. For the beginner trader it is much better to stick to penny stocks which have strong fundamentals. And by strong fundamentals I mean a good balance sheet with excellent growth prospects. A good balance sheet is one which is not carrying too much debt. And it is also nice to see revenue coming in and the company making a profit. With high growth penny stocks they may not yet be making a profit. You can also look at how much cash the company has on hand and how quickly they are going through it. The fact that the company might not yet be showing a lot in the way of profits or revenues is why looking at the management of the company is so important. In a start up company the management is the company’s greatest asset. You want to choose a company which has a quality management team with plenty of experience. They should have a track record of being able to execute successfully. Also try and find companies that are operating in hot niches. It’s a lot easier for a stock to break out when there is already a lot of buyer interest in the sector.

Another way to play penny stocks is to look for stocks that are already moving in the direction that you want them to. This is known as momentum trading. With momentum trading you are trying to catch a wave. You want to identify stocks that are already trending up and don’t look like they are about to turn. You can do this by formulating trend lines for the stock using technical analysis.

Another way to play penny stocks is to trade on the news. This was especially popular in the hey day of penny stocks during the dot com boom. Companies would make announcements about themselves linking the company to larger blue chip companies and over night the penny stocks price would shoot through the roof. Penny stocks are highly volatile which means they move up and down quickly. If you can correctly predict how a penny stock will respond to a certain news announcement and get in fast, then you can make a lot of money.

Choosing how you want to play penny stocks will depend a lot on your investor temperament. Select the strategy that is right for you, then execute consistently and with discipline.

Visit Penny Stock Investor to find the latest tips and strategies to maximise your Penny Stock Trading Profits

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