Stocks that have a beta greater than 1 are considered to be a riskier investment than the overall stock market, while inversely stocks with a beta less than 1 are considered to be much safer.
Beta as a trading signal?
While not as important as volume, stock beta can be used as a trading signal because high risk or high beta investments also mean higher rewards when trading them successfully. Beta should not be used as the only trading signal in your arsenal, and while it’s a helpful indicator of risk it’s still not an excuse to skip adequate due diligence.
Stock beta is a very important indicator and one of the first you should employ if you want to be a successful stock trader. By knowing the beta ratio of a stock you can quickly see how much implied risk & reward is involved by trading any particular security.
By learning to check for a stock’s beta you can further prepare yourself to make serious money in the overall stock market.
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