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How to Use Penny Screeners to Invest in Penny Stocks

The penny stock market is something like the wild west when it comes to the trading world. Because of more lenient filing requirements and the natural volatility inherent in the world of lower-priced shares, risk is part of the game. Penny stocks are generally sold by companies who are just starting out, or who are struggling and going through bankruptcy and restructuring. As a result, success in the penny stock market requires research.

Modern stock screening software helps the trader in researching penny stocks and narrowing down the choices in the market from thousands down to only a handful of stocks that meet the trader’s specific criteria.

What Is a Penny Stock Screener?

Image via Flickr by 401(k) 2013

In penny stock screening software, the trader creates an array of different criteria that a given stock must fall within to be considered for trading. These criteria include basics like stock price, market and industry, price situation, profits and losses, and more. Additionally, screening software can be used to review a stock’s performance over a given time frame, be it a day, week, month, or year.

The criteria entered into the screener is determined by the trader and is based on the trader’s preferences. For example; if a trader is looking to find an instrument to hold onto, screening for growth over a long time period would be entered, while a trader looking to buy and sell positions quickly would be more interested in the stock’s daily movements.

Fortunately, there are a number of powerful penny screening software programs available for free. Among others, Google and Yahoo both offer their own screeners.

Why Use a Stock Screener?

There are thousands and thousands of different stocks to choose from. Screening software allows the trader to winnow the field down to those instruments that fit their trading style, price range, and comfort zone. No one knows everything, so finding that sweet spot and doing the research really pays off when it comes to trading in the penny stock market. Screeners can be used to sort stocks by industry and market, so if a trader is specifically interested in oil and natural gas trading, the screener will help find shares being sold by those specific companies.

Stock liquidity can also be filtered. This can be especially important in the penny stock market where, unlike the major exchanges, there may not be a buyer for every seller. When it comes time to move out of a position, the trader can find themselves with stock to sell, but no one to buy it.

The penny stock market is exciting. It’s easy financially to get into and volatility makes it an essential trading ground for the day trader who wants to get in and out of positions quickly based on stock movement. There are great deals to be found on the penny stock market. After the crash of 2008, General Motors found its shares selling on the penny market. As of this writing, their stocks are selling for over $34 a share. A penny stock screener gives traders a powerful tool for navigating this potentially lucrative market.