Finding good penny stocks to invest in is an intimidating task for any investor, beginner or professional. The strategies that you would use for investing in traditional kinds of stock do not apply to penny stocks.

Penny stocks also some with less coverage from analysts, which means that there is far less information for you to research and this makes your investment inherently more risky.

Fortunately, this article can help serve as your Penny Stocks 101 Guide as we walk through the five simple steps to follow to choose the best penny stock(s) to invest in:

Step #1: Research The Company Before You Buy

Never buy stock from any company without first researching that company thoroughly. It’s very easy to research companies on websites such as Yahoo Finance or the Wall Street Journal. If you can’t find very much information about a company that you want to invest in, it’s probably a pretty good sign that you need to move on.

When researching your company, make sure that their assets outweigh their liabilities, that they have a profit, and that they at least have some acceptance from their targeted customer base.

Step #2: Open A Trading Account

Next, you’ll need to officially open an online trading account. You can open an account on a website such has E-Trade, where you will have to pay a small fee before making a trade. Make sure that the site you choose allows you to monitor price movements as well.

Step #3: Check Out The Trade Status Of Your Penny Stock

Confirm that the stock you want to invest in is being traded over a regular market exchange. Steer clear of OTC (over-the-counter) penny stocks, because they are not subject to the same regulations and disclosures as other stocks, which is obviously riskier.

Step #4: Determine Your Trading Strategy

Without a strategy, you will not be setting up your stock trading adventures for success. One strategy you can use is to sell your stocks quickly as soon as you get a twenty to thirty percent return on your investment, or you could also pursue a holding strategy where you will treat your penny stocks like a long term investment and wait for the price to hopefully rise dramatically in the future.

Step #5: Buy Your Stock

Finally, don’t forget to actually buy your stocks. Once you’ve executed the buy, carefully monitor the fluctuating price of the stock to determine the best time to sell. Make sure you keep a record of all your buys and transactions for tax purposes as well. 

Choosing A Penny Stock For Your Next Investment

If you decide that penny stock trading is something you would like to do, these will be the five steps that you will need to follow.

As a final piece of advice, remember to never fall in love with a stock, and be ready to cut your losses if the stock’s price begins to fall with no indication that it will rise again in the future.