How to Perform Due Diligence For Penny Stocks

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Penny Stock Due Diligence

Penny Stocks are high-risk high-reward trading opportunities for new investors & are a great way to start trading if you have an account smaller than $50,000. That is as long as you perform your due diligence.

Due Diligence is the art of researching investments, and when it comes to performing due diligence for penny stocks it can get pretty complicated…unless you have a guide. Which is why in this article we’ll teach you a fast 3 step formula for starting your penny stock due diligence each and every time.

Step 1- Note Reasons The Stock Might Go higher

To start go to stock news websites like http://otcmarkets.com and start looking at the latest news releases. You’re going to want to set aside at least 1 hour for this activity, and you’re going to want to go back at least 3 months as you look through news articles.

In this first sweep you’re going to be looking for all of the forward looking statements that might help push the stock price higher if they are confirmed true. Forward looking statements that hint at things such as FDA approvals or company stock buybacks will help push the stock price up tremendously if found true.

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Step 2- Note Reasons the stock price may go lower

Next you’re going to file the “good information away” and go back to http://otcmarkets.com and look for forward looking statements that suggest the stock might go lower. This time the goal is to look for possible negative stories that might effect the future.

Statements suggesting high earnings estimates that seem hard to achieve, or only having funding for only a certain time period, with no backup funding will go here.

Step 3- Note Key Event Dates

Last but not least you’ll want to become aware of all of the “key event dates” in your stocks cycle. You’ll want to go back at least 1 year for this data. Key dates are big events like “investor Lock-Up periods” ending so stock holders can sell their shares.

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Closing Words

Penny stock due dilegence is very important & while it seems complicated, it really isn’t. By using a simple 3 step formula even a complete novice can start researching like a pro.

For getting more guidance regarding penny stocks, subscribe our free penny stock newsletter.

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