Investing in penny stocks provides traders the opportunity to dramatically increase their profits, but it also offers the same chance to lose your trading capital quickly. These 5 tips can help lower the risk of one of the riskiest forms of investment.
1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the nearest Home Depot, the truth is, the probability that you will find that once successful in a decadeHistory is low. These companies are either starting and bought a shell company because it is cheaper than an IPO, or they simply do not have a business plan compelling enough to justify an investment banker, the money for an IPO. This makes them a bad investment, but it should be realistic, that you have the kind of companies you invest in.
2. Trading
Looking for a consistent high volume of shares traded on the exchanges. If one can be the average volumemisleading. If ABC trades 1 million shares today, but not for the rest of the week's trading is the daily average seem to be 200 000 shares. Order of entry and exit at an acceptable rate of return, you need consistent volume. Also check the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first, something to read. If there is no volume, you will end up holding "dead capital", which is the only way the sale of shares in the supply dump that is being made,more selling pressure, resulting in an even lower price.
3. Does the company know-how to make a profit?
While its not unusual for a start-up company to a loss run to see the importance of why they are looking to lose money. Is it manageable? Will they apply for further funding (what) to a dilution of your shares, or they will seek a joint partnership that favors the other company?
If your company knows how to make a profit, the company used the money to growtheir activity, which increases shareholder value. You have to do a little to find those companies, but if you do this, increase the risk of loss of capital, and the chances of a much higher return.
4. Did you schedule an entry and exit - and stick to it.
Penny stocks are volitile. They are quickly up and down just as quickly. Remember, if you buy a stock at $ 0.10 and sell them at $ 0.12, that represents 20% return on investment. You can drop a 2 centswith 20% loss. Many stocks trade in this area on a daily basis. If your investment capital is $ 10 000, 20% loss is a $ 2000 loss. Do this 5 times and you're the money out. Keep your stops in the vicinity. If you do not get out, go to the next opportunity. The market has to say something, and whether you admit it or not, to hear its usually best.
If your plan was to sell at $ 0.12 and it jumps to $ 0.13, take the win either 30%, or better yet, place your stop at $ 0.12. Lockinto your profits while not capping the upside.
5. As you are aware of the stock market?
Most people find out about penny stocks through a mailing list. There are many excellent Penny Stock Newsletter, but there are so many, pumping and dumping. You begin with "insiders" to load on shares, then to pump the company to unsuspecting newsletter subscribers. These subscribers to buy, while insider selling. Guess who wins here.
Not allNewsletters are bad. Having worked in the industry for the past 8 years, I have seen my share of unscrupulous companies and promoters to. Some of them are paid in shares, (sometimes in restricted shares an agreement whereby the shares) will not be sold for a certain time, others in cash.
How the good from the bad company site? Simply subscribe to and track the investments. Was there a legitimate way to make money? Do they have a track record for providing subscribersgreat opportunities? You start to notice quickly if you have a good newsletter or not subscribed.
Another tip I would like to not invest more than 20% of the overall portfolio in penny stocks. You invest to make money and preserve capital to fight another battle. If you take too much of your capital at risk, you increase the chances of losing your capital. When growing 20%, you will have more than enough money to make a healthy return on investment. Penny stocksare risky, first of all, why put your money in danger?
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