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Penny Stock Volume

BY: Kelly Ireland | Category: Finance | Submitted: 2010-03-07 11:06:55
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Article Summary: "Why is 'volume' so important for a penny stock? This article includes everything you need to know about how and why the stock's volume is so important for penny stocks..."

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Volume is the number of shares that are traded over a given period. There is usually a 10 day average volume given for penny stocks. A significant spike or dip in the volume is regarded as an important indicator.

Be careful when searching for a penny stock by volume.

The actual number of shares being traded doesn't always tell the whole story. Let me explain, if a penny stock has a volume of 1,000,000 in a single day, at a quick glance it would seem like penny stock worth researching (because of the high volume). Not only the number of shares being traded is important, but also how much money is changing hands. If the price of that penny stock is $0.50 (1,000,000 volume) then there is about $500,000 changing hands. That is a lot of money if you ask me. I would continue researching that stock.

Penny stock picks:

However, if that stock price is $0.0003 per share with a volume of 1,000,000 then there is only $300 changing hands in an entire day of trading. This is not the kind of penny stock you want to invest in. This stock is most likely in the very early stages of development. The company could be years away from generating a dollar of revenue.

The number of shares being traded and the amount of money changing hands are both important but there is one more aspect of volume worth looking at: the number of trades. A penny stock could have a price per share (PPS) of 0.05, volume: 1,000,000, money being traded: $50,000, but only have 15 trades being made all day. With a low amount of trades being made it is difficult to predict the value of the stock. The price per share (PPS) could increase or decrease by 25% for no reason (another reason penny stocks are risky).

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About Author / Additional Info:
I'm Kelly Ireland and I manage a great website designed to share information about penny stocks to the world. Penny Stocks are a great way to get started in the stock market because you don't have to invest thousands of dollars. My website also includes Hot Penny Stocks and a List of Penny Stocks.

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