Knowing how to trade penny stocks so that you are able to buy low and sell high, as the proverbial saying goes, is an important skill to have. And make no mistake, it is a skill. Many of the people out there who have lost money by investing in penny stocks have done so because of a lack of knowledge of what it was they were doing and how the system worked. Those who take the time to learn and do a proper level of research tend to have more success in this particular market.

One thing you can do when deciding to trade penny stocks and make the best purchases possible, is to examine the company’s debt to equity ratio. This is an important step because if the debt to equity ratio is low, then it usually means that the stock is actually undervalued, and you may want to hold on to your investment in that company. An undervalued stock usually goes up at some point, so wait for the ratio to become higher before trading.

As already stated, the main way to know how to trade penny stocks is through research. One good step to take is to look at the growth rate of a particular penny stock as it has performed over the years. This gives you a more long term view on the performance of the stock and will help you make fewer rushed decisions in terms of when to buy and when to sell. Knowing as much as you can gather about a company will help you become a far more informed investor.

Another ratio to consider is the price to earnings ratio. This ratio basically lets you know just what other investors out there are willing to pay for each dollar that the company earns. Timing is important here when trying to decide when to trade your stocks. If the ratio percentage is high, then it is likely the best time to sell. If you wait until it is too high, then the stock may reach its limit and plummet.

How to trade penny stocks wisely is so important in a market where there is so much volatility and unfortunately, so much fraud and misinformation. Analyzing the companies behind the penny stocks that you either own or are considering will greatly assist you in making good choices. Hot penny stocks may not actually be the ones that are listed by so-called experts, but the ones that show good numbers when looking at their performance over the years. They are likely the ones with a low debt to equity ratio and a strong price to earnings ratio. Tread carefully with your penny stock investing and do your research.

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