Why buy penny stocks? It’s pretty simple to see the raw attraction of penny stocks. You see these stocks that typically are trading under $5 and what to throw in a couple bucks. In addition, you hear about other’s large winnings every other day. But buckle up because it’s quite the rollercoaster ride. As far as penny stocks being a good investment, once you read our top 10 things to watch, you can be the judge.
Just like anything in life, those who have practiced and conditioned themselves in a specific field have a competitive advantage over those who haven’t. This applies to the penny stock market as well. Those who have that competitive edge will try and take advantage of you.
If you feel like you can handle the pressure and dangers of penny stock trading, just read some of these principles that penny stock traders, utilize each day:
Get past the fluff and pay attention to the source of the information
Understand what is making a penny stock reach a new 52-week high. It shouldn’t be based on companies that are getting paid to pump up a stock (which can be revealed via the disclaimer), it should be based on actual performances indicators like a recent earnings breakout.
Don’t Get Greedy
Don’t be the penny stock trader that feels they are going to get the next 500% return on a penny stock and miss your shot at a 50% return. The moment you make a strong return, get out.
Focus On Your Own Penny Stocks
Many penny stock traders strongly encourage other traders to ignore stories about past penny stock victories. These might not be true or could be exaggerated to pull you into a penny stock.
Some Penny Stock Companies Lie
Penny stock promoting companies aren’t the only ones you should keep your eyes on. The actual company you may want to invest in does the same pump up strategies as their promoters.
Gravitate Towards High Volume Penny Stocks
Volume matters! In order to actually make some money trading penny stocks you have to be able to actually sell your shares. If a company doesn’t have a high enough trading volume you may get stuck with your shares. So, it’s good to know a little bit about penny stock technical analysis.
Penny stocks that trade less than a certain amount of shares per day are illiquid. Some penny stock traders use 100,000 shares per day as a benchmark. Others use 1,000,000 shares per day, but it truly is up to you to decide. The reason for this is that everyone has their own strategy. In our opinion, it isn’t so much the number of shares traded as it is the dollar volume of shares.
If a stock is trading less than $100,000 in penny stock volume per day, on average, it may be something to put on the bottom of your list of penny stocks, for now.
Penny Stocks Don’t Love You, So You Shouldn’t Love Them
Cannot emphasize this enough. Play a penny stock as a short term thing. Some will stress to hold a penny stock for years but the vast majority of traders who get rich with penny stocks treat these as trades or swing trades. They hold for no more than a 6-8 months. The volatility doesn’t love you, other investors don’t love you, and the companies you invest in don’t love you, only your money.
Don’t Bet Against Penny Stocks
Never forget what penny stocks are infamous for, their extreme volatility. Volatility goes both ways buts it’s not worth it to bet against a recently pumped up stock.
Shoot for the Distinguishable Penny Stocks
Look for strong assets, earning breakouts, large media coverage (not paid company promoters), etc. Penny stocks that have these give you a much higher chance of winning.