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Penny stocks trade for $5 or less per share, which seems like a bargain. However, they are fraught with risk and volatility so investors should not incorporate them into a portfolio without first researching them thoroughly. These stocks cover almost every industry, including the oil sector. There are recommended steps to follow when picking penny oil stocks.

The individual should read industry publications and day trading magazines to get tips on how to make money picking penny stocks in the oil industry. Penny stock investing requires a different mindset than does investing in stocks for the long term. The investor needs to learn about the penny stock market and what causes these particular oil stocks to move.

Timing is everything in the stock market but even more so when it comes to penny stocks. Investors must know when to buy and sell in order to maximize their profits. They will likely spend a large part of their day tracking these stocks if they are not using a broker, so they need to be prepared for this level of commitment.

In terms of oil stocks, some things to look for are the history of the company and who is in charge. Look at the qualifications of the management team and read the company vision and mission statements. Review the financial statements, though these may not be very positive if the company has not yet sold anything. Brush up on current development efforts, identifying where upcoming projects are located and the stage of each undertaking. Research the geological conditions of the locations to see if they bode well for oil discoveries.

Almost every type of investment has some level of risk but penny stocks tend to have more than average. Making smart investments in penny oil stocks requires doing a lot of research into the company, its financials, and its exploration and development projects. This homework will pay off when the penny stock soars high due to a large oil discovery.