There are many successful traders who make lot of money trading in the highly volatile but potential penny stock market. There is little doubt that there are a number of opportunities to make a lot of money in this penny stock market. A simple movement of a stock from 5 cents to 10 cents could lead to a 100% profit. There are many penny stock investments which have appreciated by more than 500% within a few days.
Read also: How do Penny Stocks Work?
When one compares this with the stocks that move in the regular stock exchange, it could take months or even years for a particular stock to move to such levels. However, there is no doubt that penny stocks is quite risky even though the returns are fantastic to say the least. As an investor it is important for you to understand the ways and means by which we can reduce the risk by betting on stocks that have a high growth trajectory.
Experience will teach us to stay away from stocks which have lot of hype but eventually turn out to be worthless. It would be pertinent to point out here that even companies such as Google started off as penny stocks. Hence, there is little doubt that investors who have made intelligent decisions in penny stocks have raked in the mullah quite a lot.
Nonetheless, it is very important for us to have a better understanding about the various tips which certainly will go a long way in ensuring success in this highly prospective but volatile investment avenue. [wp_ad_camp_1]
Tips for Investing in Penny Stocks
Let us over the next few lines try and find out something more about the important tips or advice that we should keep in mind when it comes to investing in penny stocks.
- We have to understand the fact there is a valid reason for us to call penny stock by this name. While most of us dream of making millions by investing heavily in the stock market it is another matter that only a few actually make the big money and that too after perhaps a decade or more. Many of us try to make big money investing in startup companies because the share value of the same are quite low. However, it takes time for these startup companies to build equity and value and success is not easy to come by. The same logic applies to penny stocks and it is important for us to invest only in those organizations whose basics and fundamentals are sound.
- When investing for making money in penny stocks, we have to be always be on the lookout for trading volumes. It would be better to invest in shares which are traded heavily over a period of time instead of buying erratic in their volumes. Care should also be taken to ensure that trading volumes are not manipulated by insider trading or by a group of insiders who are artificially prop up a particular stock or share. Liquidity is another important point that should be always kept in mind. Investing in shares without volumes is akin to investing in dead money.
Read also: Tips to Buy Penny Stocks Online
- The next important factor that plays a big role in successfully investing in penny stocks is to opt for companies which are in the business with the main objective of making profits. It is quite normal for startups to make losses for the first couple of years, but such losses should be manageable and they should have adequate access to other sources of funding to shore up their operations and see that they start making money within a none-too long period of time.
- While getting into a penny stock market should be with the objective of making money, you must also have in place a sound and safe exit plan. Having is a plan is one thing and sticking to it is another. Since penny stocks are very small in their value you should be aware that even small changes in share prices could mean big profits or losses. For example if you buy a script for $01.0 and sell it for $0.12 you end up making a profit of 20%. So if you have invested around $10,000 in such transactions you could make a profit of $2,000 within a couple of hours. On the flip side even small errors of judgments could lead to huge losses. So, you should have a good plan as to when enter or exit a market if you are really keen on smart profits and are looking for ways to minimize your risks.
- Getting to know about stocks and shares is very important to make it big in penny stocks. While newsletter and mails from companies are okay, they should not be the only source of information based on which decisions are taken. You have to be aware that many such newsletters are written by people who have connections with insiders and their main objective is to prop up a scripts artificially which cannot stand the test of time.
At the end of the day we have to be aware that as is the case with all investment avenues, there are both and good elements to it. As far as penny stocks are concerned the problem is to find out the good companies and filter the bad ones. While subscribing for newsletters is good, as an investor you should not go blindly by information available in newsletter and should certainly gather information from many other sources