Trading penny stocks is a way to lose or gain money. There are no promised big profits in the trading but penny stocks trading could be beneficial. It is possible to gain money only if you understand the game well but the majority of people don’t understand the game well. It could be a great option for investors who can’t afford big shares at the moment. These stocks are low priced and hence, you can get a higher number of shares with lower investment. If the trade works out well, there are chances of reaching towards better ROI.
Penny stock promoters make sure that they take advantage of the right timing and the appropriate stocks to invest. Some people prefer trading the pennies to get associated with the new companies in different segments. It is important to remember these ten rules for making the most rewarding penny stock investments:
- Ignore the success stories
You must not blindly follow the penny stock stories posted online or sent through emails. You can’t invest in penny stocks as lottery investments which are done by the majority of people. Penny stocks are profitable and can give you solid earnings growth but there are one amongst many stocks having the probability to achieve skies.
- Don’t fall into the trap of tips
Penny stocks are actually sold than they are bought and the major culprit behind this is emails and newsletters. The free penny stock newsletters might give you tips and there is nothing wrong in reading them. The major issue is to follow them without thinking. Reading the disclaimers at the bottom part of the email or newsletter is essential to get the right motive behind revealing your interests. Most newsletters won’t tell you’re the truth and are aimed to bring the stocks towards a higher level.
- Quick Selling
You can’t make quick money very soon and if you find profits in your investments, it is always preferable to sell off the stocks quickly. Many traders get greedy and aim for a big return. However, the right way is to take the profits and move on with your plans to sell off the stocks quickly.
- Listening to the company’s management
Don’t believe what you hear from companies. You can’t trust anyone from the companies as the aim of fake companies is to raise money and stay in business. Without a business model or accurate facts, penny stock scams are quite probable to occur.
- Focusing on the stocks with high volume
The stocks trading high should be recommended. If you trade stocks with low volume, it would be difficult to sell them. You must be aware of the number of shares traded and the dollar volume. Also, it is advisable to trade penny stocks priced more than 50 cents a share.
- Using mental stop-losses
Hard stop-losses in your mind can actually cause you to lose money. The more you focus on the risk-rewards than the pre-decided stoppages, the better it will be for selling out fast and effectively.
- Buy the best stocks
Penny stocks with the highest earnings should be bought. It is easy to find out the stocks having good earnings or when they break out to the highest levels. The major challenge is to find out the penny stocks with a pump-and-dump scheme.
- Don’t fall in love with a stock
Every penny stock management wants you to think that it is the best in all the aspects. If you enter into penny stock arena, it is important to do your research and diversify your portfolio according to the facts and not just your love for the stock.