It really gets tiring to hear all the people who are afraid to take a chance on penny stocks. How about a little common sense. All stocks are risky. It is a fact that many people do get rich trading undiscovered penny stocks that have great potential. The difference between people who get rich and those who lose a ton of money is that the winning traders know what to look for and have a realistic trading plan.
Here are some things to consider before you start trading penny stocks:
Know Where Penny Stocks Are Listed
Penny stocks are listed in one of two places. The OTC BB or the “Pink Sheets”. Essentially, the OTC BB is operated by NASDAQ and investments that don’t appear on the NASDAQ can appear on the OTC BB. They file annual and quarterly statements, which can help make it a tiny bit easier for you to tell if the company has made some measure of success.
Pink Sheets is a privately owned company based in New York. It offers quotation services for unlisted stocks as well as stocks that cannot be listed on the OTCBB because they don’t meet the SEC reporting requirements. Most don’t file annual and quarterly statements but some do file voluntarily. Avoid trading penny stocks on the pink sheets for now. But keep an eye on them. You won’t lose any money by just watching them, but you could be on the winning end of a trade if a good company starts moving forward.
Find The Stocks of Companies Worth Trading
You want to find companies that are primed for a rebound. Look for a great product and a good track record. Look for companies with good management where the company is making money and has a good business plan.
Avoid the Hype
Don’t buy into any hype associated with a penny stock. Do your due diligence on the company and you won’t get suckered into a pump and dump.
Watch That Volume
Always pay attention to the volume of the penny stock traded. You have to be able to see enough volume so that you will be able to buy and sell enough shares to make a profit and protect your capital. If there is not enough volume and something goes wrong during the trading day you may find that there is no one available to buy your shares. If the volume is low don’t trade that penny stock.
Guard Your Capital
Always have an exit strategy and preserve your capital at all times. Don’t put more than $1,000-3,000 into your positions. Penny stocks can swing wildly so pay attention to what is happening with your position at all times. If the stock is doing well then take profits. If you think the stock has more upside potential then you might want to add to your position but always reset your stop loss so you don’t lose the profits you’ve already made.
Penny stock investing can be very profitable. Just enter into penny stock trades always knowing that you are taking a risk. A winner will go into a trade with a plan to limit that risk. The reward is that the returns on a well planned trade can be very financially rewarding. And after all isn’t that why you want to trade penny stocks to begin with?
