These days getting great returns on your investment is possible without large sums of money and long investment horizons. This is exactly when you buy penny stocks online to invest profitably. These are the stocks are usually priced at less than 5 dollars per share and are traded in OTC or pink sheets rather than fancy exchanges like the NASDAQ or NYSE. Penny stocks can have gains of 100-400% in a couple of months if you do your homework.

How do you day trade penny stocks? There are several rules you can follow to pick the best of the best microcap stocks.

Financial statements that are audited by a third-party accounting firm is where you should begin. Learn to look past the bottom line value alone. You never know who to trust when it comes to the smaller companies that aren’t as well regulated as the larger firms on the bigger exchanges. You have to keep track of the growth story too. Knowing the factors for driving the growth of this company is important atleast in the short run.

2) Look at the people in management positions. What makes them good leaders? Have they succeeded in the past and what is their motivation? Are they ethical?. Answers to these questions will help determine when to buy penny stocks online.

3) I hope you didn’t think you will not have to use Price/Earning ratios. This is one of the basic mantras of investing in the stock market. You should compare the PE ratio of the companies you are researching to the PE of the industry sector or of its competitors to figure out whether the company is fairly valued, undervalued or over-valued. With some experience you will develop your own set of filters or ranges of acceptable PEs.

The above are the starting points. When its time to pull the trigger and buy or sell the stock, you should keep in mind the shape of the whole economy. The trend is your friend. Know whether you are in a bear, bull or sideways market.