You need to look at some of things before you decide to trade penny stocks, though. You've got to look at fundamental data, technical analysis, and news.

If you're talking about fundamental data than you're talking about the financial statements. Make sure to look at income statements, statement of cash flows, and balance sheets.

Notice each quarterly statement. See if the company's net profit has increased consistently by each quarter. Take a look at their asset to debt ratio. Is the company taking in more debt each quarter than assets.

If you plan on trading penny stocks, then you better understand technical analysis. Learn how to read a chart correctly.

It's not like you have to smother the charts with indicators. You just need to be able to understand price action. Learn to spot support and resistance, just by looking at a chart. If a penny stock is going to take off it'll show on the charts.

But what may be the biggest factor in a rising penny stock is the news. It happens all the time. A small company comes from out of the clear blue sky and makes big news. If you don't believe me, just think about when a new drug gets approved by the FDA, and the small time big pharmaceutical company is all of a sudden the toast of wall street.

Another important factor on deciding which penny stock to trade is the sector, and the particular niche that they are carving out. Sometimes, it can just be a great idea. A good example is eBay. Do you think when that company was first starting out, there were many people dying to invest in an online auction company? Probably not. Now its a billion dollar company and a lot of people missed the boat.