5 Tips for Investing in Penny Stocks

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2. Trading Volumes

Look for a consistently high volume of traded shares. It can be misleading to look at the average volume. The daily average would tend to be 200 000 shares if ABC trades 1 million shares today and does not trade for the remainder of the week. You need consistent volume to get in and out at a reasonable rate of return. Look at the number of transactions every day, too. Is it selling or buying 1 insider? The first thing to look for should be liquidity. You will end up with “dead money” if there is no volume, where the only way to sell shares is to dump the offer, which will bring further selling pressure, resulting in an even lower selling price.