Penny stocks may sound insignificant, but they truly can be very lucrative if you invest wisely. However, penny stocks are a gamble just like any other sort of stock investing and if you want to be successful, you have to have a game plan and be very savvy at the same time. Here are some tips you can utilize to increase the likelihood that you will be successful in your penny stock trading.
1. Be Content with Small Wins
With penny stocks, you are dealing with much smaller increments and the basis of large profiting is based around trading large volumes of stocks. There is a learning curve that is involved and it is important to celebrate the small wins and then replicate them.
2. Walk Before You Can Run
Although trading penny stocks, as well as any other types of stocks is truly based on one’s ability to analyze a market and make accurate predictions based on patterns, there is an element that is more like an art form which needs to be learned over time. You need to get a feel of when to make a move and this can only be obtained with patience and practice. Therefore you should start with small increments until you hone in on your craft.
3. Record Your Transactions
You should always keep a record of every trade you have made so you can go back and study them. Trading penny stocks is a game that is based around trends and having a record to look back over and reflect on is essential to growth.
4. Trade during Regular Hours
Always make sure you are trading during regular business hours, as after hour trades can be risky and can get you into some messy situations. It is always best to have accurate and up to the minute updates in order to make the wisest decisions.
5. Do Not Over Trade
Many people get in the habit of simply trading because they feel they have to. If there are not any intelligent trades on the board that you feel confident in, simply do not make a move. This is the most underrated element of successful trading.
6. Know When to Get Out
Sometimes people make some bad trades or simply get unlucky and start to trade wildly because of the emotional aspect of the loss. Nothing will get you in the tank more than this and this mindset is sure to make you lose money.
7. Have Fun
It is always a good idea to strategize and be intelligent when you trade, but you should always keep it a fun activity which can also challenge you, which will give you the most rewarding experience possible.
The term “penny” stock is somewhat inaccurate, because stocks considered in the penny stock category can have values of as much as $5 a share. Penny stock is more a description of the market for these stocks, which can be loosely-regulated and very volatile. It’s very easy to make mistakes investing in penny stocks, especially if you are a new investor.
1. Falling for the “pump and dump” scheme
A “pump and dump” occurs when some unscrupulous group or person touts false or misleading news about a penny stock to quickly boost its price so they can sell the stock and make quick money. New investors in penny stocks who hope to get rich quick can easily fall prey to these scams.
2. Failure to do research
Companies that are in the penny stock range are there for a variety of reasons. Some are former high-flying stocks that fell after a scandal or a failure to adjust to changing business conditions. Others are stocks in companies that have unproven products or technologies that have failed to produce sufficient revenue. Before investing in penny stocks, it’s important to research the company to know what you are getting into.
3. Failure to understand the liquidity market
Penny stocks often are thinly traded, meaning it can be difficult to sell, either to take advantage of a gain or to limit losses. New investors often fail to understand this aspect and plan for it.
4. Failure to prepare for losses
Many investors see the penny stock market as a way to get rich. By buying a stock at a very low price, the opportunity for profits is endless. But that rarely happens. More often than not, penny stocks keep falling, leading to losses for those who invest in them.
5. Buying “at market”
Because of the lack of liquidity in penny stocks, it’s easy to pay too much for one. A big mistake is putting in an order at market price, meaning, essentially, you buy at whatever price someone is willing to sell. Make sure to put a specific price on your buy order.