In the stock market terminology, a penny stock refers to the common share of a small company that trades at a comparatively low price and also is equipped with a low market capitalization when compared to a big company. Investing in a penny stock can give a huge return. So investors readily invest in them anticipating massive profit. They often incur huge losses due to the lack of proper planning and knowledge. There are many examples where a person has suffered while trading in a hot penny stock. They may have done so by coming under the influence of some biased institution or dishonest organization.

Usually people believe the attractive advertisements which are shown by these organizations, showcasing an inflated return derived from the so called hot stocks. They ultimately fall prey to the fraud organizations. The most important thing while trading penny stocks is, knowing which penny stocks to watch. Moreover, seasoned penny stock traders generally have a collection of penny stocks to watch for a certain kind of trend or activity. They should also consider some of dispersion about a set point or reference.

Also, when an investor decides which stocks to watch keeping in account his personal investment style and trading tactics, it is important that he chooses some penny stocks to have progressive trends. Also he must reject those which have downward trends. This is only the basic or the thumb rule. The investor should always stick to a particular option or strategy regardless of the instantaneous market movements.

Choosing the best penny stocks or hot stocks needs lot of skill and experience. We should not oversimplify the task. Sometimes, the penny stocks to watch for upward movement may have a re-examination or sudden loss of popularity that makes them suddenly become the penny stocks to watch for downward movement. The opposite thing can also happen. So it is better to update your information about penny stocks.

There are certain powerful tools for investors to keep a track of the Hot stocks and to make sure that they invest in the best penny stocks. This type of tools is known as market scanner or stock monitor. The investor saves a list of the penny stocks to watch, and let the tool monitor their pattern or trend. It will provide alert for the abnormal activities.