9 Things You Should Know When Trading Penny Stocks

Trading penny stocks can be a great way to make a lot of money if you know what you’re doing – these tips will help provide you with some guidance.

1.​Choose Your Own Stocks

When you conduct your own research on the different penny stocks, you will definitely find a few of the – big winners which are ready to increase even higher. But rather stay away from this advice as buying into stocks blindly will leave you susceptible to misleading information and scams. This also means that you should avoid success stories that you will definitely come across. You are in a better position when you conduct your own research and when you find your own stocks to keep an eye on.

2.​Find Out About The Numbers

When you have found a company that you would like to buy into, avoid throwing caution to the wind. Instead track this company for a few weeks or months to gain a better understanding on how the prices for these stocks move. Also decide on an entry price that you think would be affordable or fair to jump on board. Once in, make sure you have already decided on your exit price. Also know at what time you will decide to sell the shares when they start to drop, which will limit your losses and when you are prepared to sell when they increase to make a profit. You may want to configure your transactions to occur automatically for additional insurance.

3.​Avoid Becoming Greedy

It is easy to lose your 20 to 30% return as fast as you have made it. The stocks involved in the penny-stock markets are able to change direction fast and those which are slow when it comes to reacting are in most cases left to sell their positions in order to cut losses. Rather take profits as soon as you are able to and then move on.

4.​Avoid Looking Back

It is very easy to sell your stocks and then make the mistake of watching how it continues to climb higher with each passing week. The frustrations of watching these climbs will only make you over think things and could result in costly mistakes into the future. As soon as you part ways with the last stocks, quickly move onto another one and make sure you are emotionally disconnected from the last one. If you do check on the prices of the stocks it should only be for educational purposes, which means avoid second-guessing yourself.

5.​Always Second-Guess The Things You Hear

From the online sources, your stockbroker or even company management, never feel ashamed or afraid to second-guess.  In the unpredictable industry of the penny stocks it is common for the involved parties to promote or publish information that is misleading. Your role as a potential-shareholder or shareholder is take everything with a pinch of salt until you are able to confirm the information you have heard.

6.​Maintain The Long Position

This means avoid selling short. The penny-stocks are volatile and when you find yourself on the wrong side of short positions the losses can be pretty dramatic. When purchasing stocks, the loss is only limited to the actual investment. When taking short positions on the stocks, the losses could be infinite because the stock may keep rising. Large swings associated with penny stocks is what makes the short positions a lot more risky.

7.​Follow The Volume

Rather choose stocks with a higher number of shares that trade hands each day. When the volume is too low, you may find it difficult to find buyers in order to liquidate the position. This is regarded as unfavorable positions, especially when your stocks start to decline. The actual size of the position you are in will also have an effect on how simple it is to leave and get out. Make sure your position is always relatively small according to an average volume which is trading each day.

8.​Research The Underlying Company

In many cases the penny-stock traders make their choices on technical signals and often forget the underlying-company. Search for earning patterns that are solid and the companies that are achieving new highs which are matched with fundamentals that are strong. The companies such as Monster Beverage, Pier 1 Imports and True Religion were all at one stage penny stocks that were searching for ways to make it big.

9.​Avoid Becoming An Investor That Is Emotional

Avoid falling in love with specific stocks. This can mar your vision of the actual potential of the stocks which may leave you open to losses. Even when convinced that your stocks are winners along with recommendations from family and friends, the better investors have the abilities to separate emotions from the investment.

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