Higher Return

• In the world of trading and investments, investors can make large profits by purchasing stocks at a cheap price and then selling them once the price increases. This is especially the case with penny stocks. While penny stocks may be considered riskier investments, they also offer a higher return potential. It is this return potential that excites investors.
  
  

Limited Fundamental Data

• Unlike mid- or large capitalized stocks, penny stocks may not have earnings. This can limit your ability to analyze entry and exit points based on earnings difficult. Instead focus on volume. Penny stocks increase in value when volume or demand for stock increases. As a result, you want to identify and find those penny stocks with an increase in market capitalization, insider buying and volume.
  
  

Market Capitalization

• Market capitalization is a measure of market size. It is calculated by multiplying the stock price by the number of shares outstanding. Penny stocks with a market capitalization over $1 million are less riskier than those penny stocks with a market capitalization less than $1 million. These stocks have a higher liquidity, which increases your ability to sell the stock to another buyer.
  
  

Volume and Insider Trading

• Volume is the number of times a transaction has occurred on a stock. A transaction is defined as a stock being sold and purchased or purchased and sold. In general, higher buy volume is a buy sign. Insider buying is also a strong buy signal. Insider trading is when company management or the board of directors makes a purchase of company stock, which is generally a good sign of internal support from management.