Penny stocks are shares of companies trading below $5. They have market caps of under $200 M and compared to typical stock, come with their higher share of risk. But that is not to say that they don’t have an allure. Penny stocks promise a big return for a small amount of investment. That’s why experienced traders and investors have penny stock trading in their portfolio.
Penny stocks, like any other business venture, demands the know-how. To make your penny stocks venture a profitable one, you need the wisdom of the trade. It will crucify you if you don’t. Here’s a good guide to picking and trading a potential penny stock.
Before you invest, choose a strategy to work with. Do enough research to make sure you are investing in the right way. You need to differentiate pumped stocks from actual performing stocks. Don’t let the company management do the research for you. Some company insiders may convince you to buy some stocks to make profits. Trust your instincts only because after all, it’s your money.
To make a profit in penny stocks, you will first need to find the right stock to buy. There are several methods to do that, and you will need the best tactics. First and foremost, find the right company. For instance, you may run into a company that maybe facing bankruptcy and is in the process of restructuring or changing ownership.
This may represent value if the company has assets, capital equipment, huge inventory or real estate. All these will appease the acquirer to see the worth of the company and invest. These companies are rare but not impossible to find. It is also hard to predict when a big company will change hands and find a new vein, but it’s possible.
With proper research, you may find companies with the potential to reinvent themselves and get listed back on the exchange.
As an investor, you will get thousands of penny stocks to choose from. The good ones are rare and so you should be keen on the companies that post steady earnings, have obtained new contracts and have substantial buying from insiders. It is an added advantage if the stock has 52-week highs in volume of at least a ¼ of a million of shares per day. If a stock fulfills these criteria, then by all means go in.
Even if the stock is priced nicely, and it looks easy to double your earnings, be calm and careful and do a background check first. You can make good money trading penny stocks, but you have to check the ones with good values and fair prices, instead of risking on just cheap priced stocks.
The challenge you face in buying penny stocks is the obscurity. Don’t let this work against you. You must try to find a cheap stock from a decent company and hope not many people do. When the value goes up and you find a buyer, sell right away. Never get attached to a stock and forget to think rationally.
You are working for profits and hence you need to capitalize on available opportunity. If you are not achieving the goal you have set, then why are you on the trading table.
This is a guest post from Penny Stock Guru Tim Sykes’s team mate Alec, from Penny Stock conspiracy team. They are the champions of making profit via trading Penny stocks. By publishing this article I am in no way recommending you to start trading in penny stocks. If stock trading is risky, trading penny stocks is even riskier.
There are people who made millions by trading in Penny stocks, but there are many more who lost fortune while trading penny stocks. Be careful and do thorough research before investing in Penny stocks. If they go down, you’ll probably not recover any of your investment. Worse, during bad time, when you disparately try to sell your penny stock there will not be any buyer. I never invest in penny stocks, neither I am planning to.
If you really want to trade in penny stocks, be careful and all the best. At least if you have play money, go ahead. Penny stocks are easiest way to multiply your investment by many fold. At the end, here’s another story of a successful penny stock trader, Tim Grittani
Readers, do you trade in penny stocks? Have you made any real profit out of it?
Taylor Lee says
When I was a kid, my mom let me trade on her retirement account (long-ish story) but I remember trading this Chinese telecom stock when it was just under $4 and watching it shoot up to $13 when I sold and later stabilizing around $25. Too bad I only had 1k invested at the time.