The profit potential of penny stocks has been catching the interest of investors and traders alike.  This is in contrast with the previous image of penny stocks as the ultra-poor relatives of the blue-chip stocks and other mainstream stocks traded over the so-called big boards. Said change in perception can be attributed to many factors including better information, better reach over a wider audience and better returns on investments under certain conditions.

But before being blinded by the gold – fool’s gold, of one is not too careful – of penny stocks, it is very important to keep certain things in mind.  These tips are necessary because of the limitations of penny stocks in terms of transparency of the issuing companies, liquidity of the stocks and regulatory mechanisms in place.  Of course, there are methods by which these limitations can be overcome as discussed in the following article.

Places for Trading  Great Penny Stocks

As previously mentioned, penny stocks are not traded over the big boards like the New York Stock Exchange and Nasdaq.  Microcap shares, as penny stocks are also called, are traded mainly over the OTC Bulletin Board (OTCBB) and the Pink Quotes although stock exchanges like the American Stock Exchange (AMEX) and Nasdaq also offer high volume penny shares.  The main difference between the first two trading venues is that there is a lesser quantity and quality of regulatory activity than on the second two venues.

As such, most investors and traders will shy away from the Pink Sheets with the OTCBB as the second choice for discount trades.  The Nasdaq and AMEX are the better choices since regulations are strictly enforced on the issuing companies.

How To Profit From The Best Penny Stocks

We have all heard about doing your homework when engaged in penny stock trades.  Research is an important part of performing technical and fundamental analysis on the microcap shares under consideration as well as in the qualitative evaluation of the company itself.

But probably the most overlooked method in turning a profit for penny stocks is by looking at the growth catalysts.  These factors for growth can lead to the doubling, tripling and even quadrupling of the gains made from one minute to the next.  It is also these growth catalysts that make a penny stock stand out from the rest of the mediocre small cap shares littering the market today.

So, what exactly are we looking for great penny stocks?  Well, there are 2 catalysts in this regard:

• Commercialization – It takes years of research and development, clinical trials and efficacy tests, as well as deals and negotiations before a brilliant idea for a product or a service can be introduced into the consumer market. But once the consumers accept said product or service, the value of the penny stocks will rise into the quadruple digits.
• Buy Outs – Companies purchase another organization, which may or may not be related to the former’s line of services offered. In the process, the soon-to-be-acquired company’s shares can rise in value especially when the purchaser is a big name in the industry.

When all of these factors are put together, it becomes easier to pull in the profits from day trading in penny stocks.  The key here is to always be on top of your investments by being vigilant of the changes happening in the company, the industry and the economy.