How To Start Trading Penny Stocks Wisely

 

 

Normally when we talking about penny stocks, it can mean small and micro cap stocks trading below $5.

The Penny Stock Market provides investors with a fast moving and highly profitable market. Penny Stocks are one of the most sought after investments in the eyes of investors/traders as it can allow you to become very wealthy in a short amount of time. However, with the reward always comes the risk. When you invest in Penny Stocks you should never put up more than you can afford to lose and you should assume you would lose it all. Unlike regular securities, Penny Stocks are a bit more regulated in regards to available options and usually do not let you use risk-cutting procedures (options and/or stop orders) since most are not traded in a regulated market place.

When buying penny stocks, like any other security investment, you never invest 100% of you investing capital. Penny Stocks are fun to trade, but you should never count on them to be considered part of your primary investment objectives. You should always evaluate your current financial state before you decide to invest in Penny Stocks, as these vehicles should only be used by money that is not needed for other more important things.

 

How do I Distinguish Between A Good or Bad Penny Stock?

The first thing you need to understand is the company itself. Who is the company? How long have they been running? Who’s the CEO? Having an understanding of what you are actually investing in is truly Step 1 in anything you ever invest in. Secondly, investors are always looking for a great story. Once you know the story you need to check all the facts and assumptions to make sure that they are true before you invest in penny stocks.

Stocks go up because people are prepared to pay more for them. Even if a company is doing well, the price will not increase until people are willing to pay more for the company. The next step is to determine the factors that will cause the price to rise and what will indicate this assumption is valid. In researching, one should always first look to see if the company is disclosing information.

You cannot tell what you are buying without information. Next you should look to see if the stock is cheap, comparing the market capitalization with the assets and earnings, if any. Typically, one should always avoid companies/stocks with low liquidity, reverse splits, frequent changes of name or business, excessive dilution! Heavy dilution is a big NO-NO!

 

Helpful Tools To Invest In Penny Stocks

List of Current Promotional Campaigns:
http://stockreads.com/

Free Charting Platforms:
http://bigcharts.marketwatch.com/
http://stockcharts.com/

Free Stock Scanner:
http://stockcharts.com/def/servlet/SC.scan
http://www.trade-ideas.com/

Books:
– What Works on Wall Street by James O’Shaunessey
– Beating the Street by Peter Lynch
– One Up on Wall Street by Peter Lynch
– Trading For a Living by Alexander Elder
– Mastering the Trade” by John Caster
– How to Make Money in Stocks” by William O’Neil
– The Disciplined Trader by Mark Douglas

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