...Picking stocks, especially microcaps is both a science and an art.
To start with, it takes research - so be pragmatic in your approach to unearth information you can, read research when available, look over message boards if available to see what the shorts vs. longs are saying, check daily stock volume, look at charts, and be weary of stocks that do not trade at least $50,000 a day for lack of liquidity.
Check the number of market makers on a free level 2. The more market makers the better, and ultimately you will figure out the difference between a wholesale and retail market maker. Understanding what the market makers are actually doing will be addressed in a future one of these snipits.
Look to find public information on insider sellers and insider buyers. Obviously buyers are better than sellers and stocks trending higher is a positive, but price spikes sharply up must come down, and could be the result of hype, however, if the trend is steady and gradual and tied to such things as good news, good earnings or increasing revenues etc..., the greater the potential price appreciation both short and long term.
Press releases are like tattoos - they are permanent, people notice them and at times can put a company or executive in an uncompromising position. They are invaluable not only for what they say, how they are written, but most importantly, the reaction by the markets to the information is all telling. I once researched the average number of press releases a public company makes, and the number was 22 or about 2 per month.
Before buying a stock visit the company website to see management - watch videos, and if you're not impressed use that as a reason to find something else to buy. Continue to check the website for changes and updates or links not working. If possible, meet management in person at a conference or on a scheduled webinar.
Bonus points are given for discovering the percentage of institutional ownership and total shares in the float. Do a stock-to-stock comparison in the sector and determine what percent of the company is owned by management (too little or too much can be problematic and can influence price pressure on a small float).
Check cash, not assets on last public filing. If the stock price has increased dramatically find out why - it may have simply been a reverse split, which reduces shares outstanding and increases the stock price.
Let me summarize, we still have cash and stocks trending higher and we're figuring out which stocks to add. Notice I am putting the onus on you to become more educated than to depend on luck or advice.
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