| Penny stock investing can be lucrative no doubt. But | | | | selling on the stocks. If it is just one trader doing the |
| it is a very risky proposition especially if you dont | | | | high volume, then alarm bells must be ringing in your |
| know what you are doing. Its important to keep | | | | head by now. And even when there are many |
| these two things in mind before you decide to jump | | | | traders on the floor, you must figure out the flow of |
| headfirst into this style of investing. | | | | trades. Too little or too much can be a bad thing for |
| Be Careful about the Penny Stocks Companies | | | | your investment. |
| Penny stocks are dirt-cheap compared to the | | | | If you deem it unwise to continue investing in a |
| blue-chip stocks for a reason, or rather, for many | | | | company because of the lack of traders and trading |
| reasons. For one thing, these companies are startups | | | | volume, then unload your penny stocks. Sometimes |
| that stand on shakier grounds than most established | | | | its not prudent to simply be patient and wait for |
| companies especially in these recessionary times. For | | | | things to get better as they sometimes never do. |
| another thing, these enterprises may not have sound | | | | Formulate and Follow an Entry and Exit Strategy |
| business plans that justify IPO investment. As such, it | | | | Whenever talk about entry and exit strategies the |
| pays to do your research before investing in the | | | | saying 'Bulls make money, bears make money, but |
| company's penny stocks. Never rely on hot tips and | | | | pigs get slaughtered.' comes to mind. In short, be |
| insider information either since these are deceitful | | | | aware of trend, go long or go short (i.e. buy or sell |
| ways to encourage investors to put money in a | | | | short) but keep an entry price point and an exit price |
| sinking boat. | | | | point in mind. If you don't think about the two |
| However, you should not dismiss a penny stock | | | | 'before' you trade, you are likely to let emotions get |
| company operating at a loss. You have to determine | | | | in the way once the trade is in action. Emotions and |
| the reasons for those losses, the capacity of the | | | | profits dont always mix very well. You can take our |
| management to turn the company around with an | | | | word for it or learn this expensive lesson on your |
| infusion of new capital and its standing in the business | | | | own. Keep in mind - the penny stock market is highly |
| community, among other considerations. Again, this is | | | | volatile, so it pays to be very prudent with what |
| where your due diligence comes is necessary. | | | | profits you are content with and what you can |
| Look for Consistent High Trading Volume among | | | | afford to lose. |
| Many Traders | | | | One of the more important components of your |
| You must look for consistently high trading volume in | | | | entry and exit plan must be that your penny stocks |
| the penny stocks you are thinking of investing in. | | | | must comprise only 10 percent of your total |
| More often than not, the average volume is | | | | investment portfolio. You cannot place your portfolio |
| misleading as the highs in trading volume for a day | | | | at greater risk than is necessary and avoidable by |
| can pull up the lows in the succeeding days. Also, you | | | | placing all your eggs in the penny stock basket. |
| have to assess the quantity of traders buying and | | | | |