Learning Penny Stocks

Choosing Penny Stocks To Watch – Stock Screeners

 

Choosing from the universe of cheap stocks may appear daunting. You have to start somewhere though. Begin with a stock screener like FINVIZ.com. This is an automated online tool for finding stocks that meet the criteria you set. Online penny stock brokers, like TD Ameritrade or Interactive Brokers offer stock screeners as well, so you can use those if you have an account.

 

Consider applying the following elimination criteria:

 

Choose only American and Canadian penny stocks that are listed on major exchanges, like NASDAQ, OTC-BB, AMEX, TSX, TSX-V. Avoid pink sheets and over-the-counter stocks. They are a losing game.

Avoid industries that you don’t know. By keeping an eye on only a few specific industries that you are familiar with, you will have greater perspective about corporate players and overall trends.

You should set a share price minimum. If you focus on stocks with a share price more than $0.50, for example, you will probably come up with even better selection of penny stocks.

Also, filter out low volume stocks. For example exclude stocks with an average volume less than 100,000 shares per day.

Screening by market capitalization is a great way to filter out companies based on size. You should eliminate businesses that are too small, e.g. worth less than $100,000 in total.

Set some fundamental criteria too. You may choose to see only stocks that have a P/E ratio of 12 or lower.

You should always adjust the filtering criteria according to your trading style and performance in order to find the best penny stocks to buy. Also, keep in mind that stock screeners are not without limitations. They can filter out stocks only based on the parameters you specified, but cannot look behind the companies’ business practices, management effectiveness, competitors, flagship products, legal battles, etc. You will have to thoroughly analyze companies that your stock screener produces.

 

If you apply these filters correctly you will quickly eliminate huge numbers of low-quality stocks. But if you are still left with hundreds of stocks, tighten your criteria even more. Your watchlist should contain no more than a couple of dozen good penny stocks. This is the best way to learn how penny stocks work.