Trading penny stocks can be tricky, especially if you like to find them on your own. The good news is there are a whole range of websites that can help you spot and trade the best.

When it comes to really improving your results with penny stock trading though ” in a big way ” top traders know theres more to it than simply looking for solid companies and using technical analysis to enter and exit trades.

In order to be successful, you need to know how to weed the garden of penny stocks. This way you can eliminate the mediocre or low-odd stocks. Here are four high-level concepts to help you work through this process.

Is Management Motivated by Insider Buying or Ownership?

Not that this is guaranteed to prevent a stock from collapsing, but management of a company can be highly motivated when theyre also significant investors of their company. If instead theyre selling some or all of their stock (without a clear reason), it may be a stock other investors should avoid. After all, insiders are more familiar with a company than any ordinary investor could be.

Information about how much stock a companys management owns is a matter of public knowledge. Publicly held companies generally disclose the breakdown in an 8K and/or Form 4 filed with the SEC.

Consistent PR Effort ” Does the company at least realize their stocks price is as much a result of publicity and presence as it is about fiscal success? This is especially true of penny stocks.

If companies dont promote positive news”be it the Internet, television or even newspapers”potential buyers will be left in the dark. A good public relations plan can make a big difference for a company.

Consistent Volume, Mostly ” Is there actually going to be a market for this penny stock the day you want to get out, and at a decent price?

Make sure you monitor the volume on any penny stock you own. It could make a big difference in the amount of profit you can take off the table.

When it comes to volume, you just need to make sure the pre-surge volume is respectable. High-volume breakouts often spawn new uptrends, so you shouldnt necessarily avoid them.

Peeking back at a companys history before buying a penny stock is really important. You certainly dont want to invest in a fly-by-its-seat kind of company. Look for signs of stability and strong management.

Most penny stocks are going to be of young, growth-stage companies, so a trader shouldnt expect a textbook example of a perfect investment. On the other hand, a company should be able to demonstrate that it will sooner than later bring a product to the market or turn a profit. (The same is also true with penny stocks of older, established companies though.)

Likewise, more than half of all stocks trade at a value under their IPO price within twelve months after their public offering sale. Thats not a problem for a true long-term investor, but it can make things challenging for a penny stock trader who wants to get in early shortly after an IPO. It can take a while for a new stock to settle in and start trading predictably.

You shouldnt buy a penny stock if it has little or no history of trading. That just spells trouble.

Thats it ” four simple concepts you can start applying immediately.

These four elements are not meant to replace a good trading discipline and chart monitoring. Use them in conjunction with sound strategy and youre likely to improve your track record as a penny stock trader.

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