| Investing in penny stocks provides
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| | Penny stocks are volitile. They will
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| traders with the opportunity to
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| | quickly move up, and move down just as
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| dramatically increase their profits,
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| | quickly. Remember, if you buy a stock at
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| however, it also provides an equal
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| | $0.10 and sell it at $0.12, that
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| opportunity to lose your trading capital
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| | represents a 20% return on your
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| quickly. These 5 tips will help you lower
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| | investment. A 2 cent decline leaves you
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| the risk of one of the riskiest
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| | with a 20% loss. Many stocks trade in
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| investment vehicles.
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| | this range on a daily basis. If your
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| 1. Penny Stocks are a penny for a reason.
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| | investment capital is $10 000, a 20% loss
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| While we all dream about investing in the
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| | is a $2000 loss. Do this 5 times and
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| next Microsoft or the next Home Depot,
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| | you're out of money. Keep your stops
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| the truth is, the odds of you finding
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| | close. If you get stopped out, move on to
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| that once in a decade success story are
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| | the next opportunity. The market is
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| slim. These companies are either starting
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| | telling you something, and whether you
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| out and purchased a shell company because
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| | want to admit it or not, its usually best
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| it was cheaper than an IPO, or they
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| | to listen.
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| simply do not have a business plan
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| | If your plan was to sell at $0.12 and it
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| compelling enough to justify investment
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| | jumps to $0.13, either take the 30% gain,
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| banker's money for an IPO. This doesn't
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| | or better still, place your stop at
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| make them a bad investment, but it should
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| | $0.12. Lock in your profits while not
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| make you be realistic about the kind of
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| | capping the upside potential.
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| company that you are investing in.
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| | 5. How did you find out about the stock?
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| 2. Trading Volumes
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| | Most people find out about penny stocks
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| Look for a consistent high volume of
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| | through a mailing list. There are many
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| shares being traded. Looking at the
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| | excellent penny stock newsletters,
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| average volume can be misleading. If ABC
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| | however, there are just as many who are
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| trades 1 million shares today, and
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| | pumping and dumping. They, along with
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| doesn't trade for the rest of the week,
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| | insiders, will load up on shares, then
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| the daily average will appear to be 200
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| | begin to pump the company to unsuspecting
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| 000 shares. In order to get in and out at
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| | newsletter subscribers. These subscribers
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| an acceptable rate of return, you need
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| | buy while insiders are selling. Guess who
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| consistent volume. Also look at the
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| | wins here.
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| number of trades per day. Is it 1 insider
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| | Not all newsletters are bad. Having
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| selling or buying? Liquidity should be
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| | worked in the industry for the last 8
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| the first thing to look at. If there is
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| | years, I have seen my share of
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| no volume, you will end up holding "dead
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| | unscrupulous companies and promoters.
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| money", where the only way of selling
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| | Some are paid in shares, sometimes in
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| shares is to dump at the bid, which will
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| | restricted shares (an agreement whereby
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| put more selling pressure, resulting in
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| | the shares cannot be sold for a
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| an even lower sell price.
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| | predetermined period of time), others in
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| 3. Does the company know how to make a
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| | cash.
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| profit?
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| | How to spot the good companies from the
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| While its not unusual to see a start up
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| | bad? Simply subscribe, and track the
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| company run at a loss, its important to
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| | investments. Was there a legitimate
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| look at why they are losing money. Is it
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| | opportunity to make money? Do they have a
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| manageable? Will they have to seek
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| | track record of providing subscribers
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| further financing (resulting in dilution
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| | with great opportunities? You'll start
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| of your shares) or will they have to seek
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| | to notice quickly if you have subscribed
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| a joint partnership that favors the other
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| | to a good newsletter or not.
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| company?
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| | One other tip I would offer to you is not
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| If your company knows how to make a
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| | to invest more than 20% of your overall
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| profit, the company can use that money to
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| | portfolio in penny stocks. You are
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| grow their business, which increases
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| | investing to make money and preserve
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| shareholder value. You have to do some
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| | capital to fight another battle. If you
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| research to find these companies, but
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| | put too much of your capital at risk, you
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| when you do, you lower the risk of a loss
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| | increase the odds of losing your capital.
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| of your capital, and increase the odds of
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| | If that 20% grows, you'll have more than
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| a much higher return.
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| | enough money to make a healthy rate of
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| 4. Have an entry and exit plan - and
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| | return. Penny stocks are risky to begin
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| stick to it.
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| | with, why put your money more at risk?
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