Penny Stock Basics Trading Penny Stocks

Penny Stock Basics: Making Money With Cheap Stocks

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The Goal of Penny Stocks Is To Make Money With Lower Cash Outlay; Learn The Basics

In order to invest in penny stocks the right way, I cannot stress enough how important it is to research. This includes everyone from looking into the companies, their news, and filings. From a fundamental stance, companies with high and consistent earnings could offer more long-term potential compared to companies that report very little.

Figure out the company’s finances such as their earnings, profit, expenses and literally anything else you could possibly find. Find out the company’s history, the management, look into their website, and other legitimate financial websites.

Fro ma technical perspective you’ll also want to find penny stocks with plenty of liquidity. There’s nothing worse than buying a penny stock but finding there isn’t enough trading activity to sell at a profit.

If you decide to invest in penny stocks, it may not be a bad idea to find ones that trade a minimum number of shares a day. That’s just so it can be easier and in your best interest for you when you decide to sell your stocks. I won’t give a minimum for you as it typically depends on your portfolio size.

For some, $500 is a large position size. Usually, if a stock trades $10,000/day or more, this could be enough liquidity to enter and exit a trade. However, if you trade with $15,000 a day, then obviously a market trading $10,000 in liquidity per day won’t do you any good. If you’re looking to learn more about buying and selling stocks, it may not be a bad idea to find the best education to learn some more advanced strategies before making your first trade.

Penny Stocks & Diversification

So, if you decide to invest, it is important not to be greedy and try to diversify your investment portfolio. As not to get too self-indulgent you should not risk more than you can afford to lose. Some use a rule of thumb of 5% to 10% of their capital to trade penny stocks. But again, this is subjective to your own risk tolerance and available capital.

Also, you’ll want to try and find the right brokers that will not enforce major fees as well. Ever since Robinhood came onto the scene, the brokerage world has shaken up. Now we’re seeing the advent of low and no-fee accounts. Schwab purchasing TD Ameritrade now offers a no-fee option. Trade Station, E-trade, and many others are now jumping on to the new trend. But there are still some brokers that charge fees.

Read More About Penny Stocks

Make sure that if you use a broker that charges fees, you know where that money is going. Is it for free data, level 2, charting software, etc? Or is it simply used to pay for the overhead of the company? With so many no-fee options, you should get more if you need to pay trading fees.

Penny Stocks Can Be The Wild West: High Risk, High Reward

My best advice is to always remember that penny stocks are risky for a reason. You can buy them for a very low price, so it is of utter importance to do your research before investing. Take a diversifies approach to your portfolio the best you can. Also, seek help if necessary; high risk comes with high rewards but you don’t want to lose all of your money while you “learn.”

By J. Phillip

I stay on the cutting edge of industry and enjoy finding out about new companies that major outlets and funds haven't heard of (yet). Most of the time you can find me deep in the corporate filings, focusing on fundamentals that could be behind the next big move in certain stock.

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