5 Tips for Investing in Penny Stocks

Investing in penny stocks provides traders withrepresents a 20% return on your investment. A
the opportunity to dramatically increase their2 cent decline leaves you with a 20% loss. Many
profits, however, it also provides an equalstocks trade in this range on a daily basis. If your
opportunity to lose your trading capital quickly.investment capital is $10 000, a 20% loss is a
These 5 tips will help you lower the risk of one of$2000 loss. Do this 5 times and you're out of
the riskiest investment vehicles.1. Penny Stocksmoney. Keep your stops close. If you get
are a penny for a reason.While we all dreamstopped out, move on to the next opportunity.
about investing in the next Microsoft or the nextThe market is telling you something, and whether
Home Depot, the truth is, the odds of you findingyou want to admit it or not, its usually best to
that once in a decade success story are slim.listen.If your plan was to sell at $0.12 and it jumps
These companies are either starting out andto $0.13, either take the 30% gain, or better still,
purchased a shell company because it wasplace your stop at $0.12. Lock in your profits while
cheaper than an IPO, or they simply do not havenot capping the upside potential.5. How did you
a business plan compelling enough to justifyfind out about the stock?Most people find out
investment banker's money for an IPO. Thisabout penny stocks through a mailing list. There
doesn't make them a bad investment, but itare many excellent penny stock newsletters,
should make you be realistic about the kind ofhowever, there are just as many who are
company that you are investing in.2. Tradingpumping and dumping. They, along with insiders,
VolumesLook for a consistent high volume ofwill load up on shares, then begin to pump the
shares being traded. Looking at the averagecompany to unsuspecting newsletter subscribers.
volume can be misleading. If ABC trades 1 millionThese subscribers buy while insiders are selling.
shares today, and doesn't trade for the rest ofGuess who wins here.Not all newsletters are bad.
the week, the daily average will appear to be 200Having worked in the industry for the last 8
000 shares. In order to get in and out at anyears, I have seen my share of unscrupulous
acceptable rate of return, you need consistentcompanies and promoters. Some are paid in
volume. Also look at the number of trades pershares, sometimes in restricted shares (an
day. Is it 1 insider selling or buying? Liquidity shouldagreement whereby the shares cannot be sold
be the first thing to look at. If there is no volume,for a predetermined period of time), others in
you will end up holding "dead money", where thecash.How to spot the good companies from the
only way of selling shares is to dump at the bid,bad? Simply subscribe, and track the investments.
which will put more selling pressure, resulting in anWas there a legitimate opportunity to make
even lower sell price.3. Does the company knowmoney? Do they have a track record of providing
how to make a profit?While its not unusual to seesubscribers with great opportunities? You'll start to
a start up company run at a loss, its important tonotice quickly if you have subscribed to a good
look at why they are losing money. Is itnewsletter or not.One other tip I would offer to
manageable? Will they have to seek furtheryou is not to invest more than 20% of your
financing (resulting in dilution of your shares) or willoverall portfolio in penny stocks. You are investing
they have to seek a joint partnership that favorsto make money and preserve capital to fight
the other company?If your company knows howanother battle. If you put too much of your
to make a profit, the company can use thatcapital at risk, you increase the odds of losing
money to grow their business, which increasesyour capital. If that 20% grows, you'll have more
shareholder value. You have to do some researchthan enough money to make a healthy rate of
to find these companies, but when you do, youreturn. Penny stocks are risky to begin with, why
lower the risk of a loss of your capital, andput your money more at risk? Penny Stocks |
increase the odds of a much higher return.4. Haveinvestment strategies for penny provides penny
an entry and exit plan - and stick to it.Pennystock traders with online trading and investment
stocks are volitile. They will quickly move up, andtips, online trading strategies and penny stock
move down just as quickly. Remember, if youpicks.
buy a stock at $0.10 and sell it at $0.12, that