How to Intelligently Trade Penny Stocks

First off, if you are going to "play" the Penny stocks, you should be trading the majority of them and not investing in them. You'll understand why shortly.

Penny stocks are normally those that have a share price of $5 or less, with many being under a penny. Those stocks that sell for less than a penny are called "subbers", as they are a sub-penny in value. Some actually trade in the hundredths of a cent.

The majority of the pennies and subbers trade don't trade on the higher exchanges, such as the NASDAQ or AMEX, but rather on the Pink Sheets or the Over the Counter Bulletin Board (OTCBB). This is due to them not meeting the minimum requirements of the higher exchanges, primarily because they are emerging, small companies in the development stage.

Before getting into the actual nitty gritty of the trades, you will need to meet your own requirements before trading:

- Most importantly, never trade with money you can't afford to lose! Read that again. Too many people take money out of savings, their paychecks, etc., that is needed for their daily expenses. The worst case is taking out a loan to "invest in a sure winner". Greed kills. Mortgage or rent goes unpaid, marriages suffer, etc.

- Find a broker that has online trading AND also will allow you to trade in penny stocks on the Pinks and OTCBB. Not all do, and you don't want to take the time to set up an account and find out later that you can't trade the penny stocks. Check first before signing up!

- You will eventually migrate to a trading forum board on the Internet and discover all sorts of great picks - not! The message boards are dangerous to your trading account for a variety of reasons. More to come on this below.

- Learn this term and apply it every time you think you want to buy a certain stock: Due Diligence, or DD. This involves researching everything you can find on the stock, and only factual, verifiable information. Some of the resources are the company's own web site, official press releases (PRs), web sites such as Yahoo Financial, The Pink Sheets, InfoQuotes, etc. One thing that is NOT DD is getting info from the message boards, unless there is a verifiable source.