Some Methods You Can Use To Find the Cheap Stocks That Have A Better Chance For Making You Money

Nov.25, 2007 in Market Outlook

Investing in low-priced stocks may seem appealing to the investor with limited resources. However, there are both positive and negative aspects in taking this approach to investing. Here, we outline some of the methods you can use to find the cheap stocks that have a better chance for making you money:

Check trading volume to make sure that a substantial number of investors and traders are buying and selling the stock.
Find out what the company does, and who its principals are. This is particularly important in relatively unknown, low-priced stocks, because such stocks are sometimes the target of scams and securities fraud.
Determine the number of outstanding shares, in order to make sure that the stock has the potential to rise with proper trading volume.
Research institutional ownership and insider activity. This should give you a feeling for what company executives and professional investors feel about the future of the company.
Find out if the stock has high short interest. If it does, the stock may be prone to short-covering rallies. You can take advantage of such rallies .

Buying and selling low-priced stocks can be a little tricky. Make sure to use limit orders instead of market orders. Although limit orders may cost a few dollars more, they won’t give you any unpleasant surprises. Because the market for low-priced stocks is often thin, using market orders can have disastrous consequences.

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