There is a tremendous lure of Penny Stocks among investors.
They hope to make it “Big” by trading Penny Stocks.
As the name goes, penny stocks are small cap, low-priced stocks.
If you go by the traditional definition, a penny stock is defined as a stock which is priced less than a dollar per share. These stocks are usually not traded in a major stock exchange such as NASDAQ or the NYSE. Moreover, the company behind penny stock is extremely risky. It might be a very small company involved in a high risk business. It might carry loads of debts or might carry huge tax liabilities. There market capitalization is minimal when compared to big companies such as Apple, Coco-Cola, or Ford.
Let us understand why there is so much rush after penny stocks. The primary reason is the low cost attached with a penny stock. You can buy a penny stock for less than a dollar per share. So, investors who do not have big capital to invest in shares can easily enter share market and trade penny stocks. Next comes the probability of making huge returns. Suppose you buy penny stocks with a share price of $0.30, and if the stock price reaches $0.60, you end up doubling your money. So, penny stocks offer you an opportunity to double, triple, or quadruple your money.
Although the mathematics looks simple, it is actually a risky affair to put your money on penny stocks. It is not at all easy to find a penny stock that will double or triple your money. In normal circumstances, you may end up losing your money. So the risk is huge when you play with penny stocks. In simple words, the risks-reward ratio is very high. On one, hand, you may make big profits; on the other hand you may lose all your money.
So before investing your money on penny stocks, it’s important to understand the basic rules of playing the game thereby minimizing your losses and increasing your chances of making big profits.
Here under, I have listed 10 Profit Making Penny Stock Tips that can prove valuable when you take up penny stock investing. These profit making penny stock tips shows what you have to do in order to increase your chances of making big profits from trading penny stocks.
The 10 Profit Making Penny Stock Tips
Devise Your Strategy
As an investor in Penny Stocks, you must be aware with one of the very basic fact about Penny Stocks. The fact is that Penny Stocks are a risky investment proposition. Yes, the bottom line is pretty obviously clear. Penny Stocks are risky.
If you are not a careful investor, there is a huge probability that you will end up losing your money. For this very reason, penny stocks are not meant for novice investors.
However, on the up-side, Penny Stocks can shell out huge profits. That’s why lots of investors look upto Penny Stocks.
So, you should come up with a sound strategy to tackle Penny Stocks.
First and foremost, you should come up with a budget for Penny Stocks.
Secondly, you should make sure that you stick to your budget and never exceed that value.
Thirdly, Penny Stocks should never form a sizable portion of your investment portfolio.
So, for example, you have invested a total of $100 in the stock market, your investment in penny stocks should not exceed $10. With this kind of strategy, you provide yourself with an opportunity to invest in Penny Stocks. You also make sure that you can bear any kind of losses (if at all it happens) arising out of investing in Penny Stocks.
A chief characteristic of Penny Stocks is that they are unpredictable and unreliable. Moreover, you do not get to see a stable trend with Penny Stocks. So, one of the key penny stock tips is that you should sell them off quickly as soon as you have netted in some profit. First of all, getting profitable returns from penny stocks is not an obvious outcome when you go onto buy them. Odds are high for netting in losses.
So when you earn profits from investing in penny stocks, you should consider it equivalent to winning a battle. If you go on to make a profit of 20% to 30% in few days, you should not wait any longer and should sell off your penny stocks quickly. The result being that you earn profit out of your investment in Penny Stocks.
However, many traders get greedy and hope to increase their profit margin by holding these stocks. Actually this might result in the contrary and instead of increasing your profit margin; you might end up making losses. So, the bottom line is; play safe and sell quickly as soon as you reap sizable profits from Penny Stocks.
Go with the Fundamentals
As a rule of thumb, you must be aware that all the fundamentals of stock trading are also applicable to Penny Stocks. So, you should not be in a state of ignorance as far as trading Penny Stocks is concerned. The same fundamentals apply to Penny Stocks as with other stocks. You have to counter the same risks in Penny Stocks as you face with other stocks. So, if you want to profit from Penny Stock trading, you have to keep the fundamentals in mind. You should look for the merits of a company. The Price/Earnings Ratio should be as low as possible. You should also check it’s accumulated debt. The company should possess a clear action plan as well as you should take note of its past performance.
Don’t Hurry to Buy Penny Stocks
This is another very useful profit making penny stocks tip. So, don’t hurry to buy Penny Stocks. You should take your own time and choose suitable penny stocks. In fact, you have no obligation to choose a particular penny stock. More penny stocks will surely appear to give you an ample scope to select the most appropriate stocks among them. Demonstrate patience and do a comprehensive research before making the final choice. Remember that you have limited funds that you can invest in penny stocks. So utilize it properly rather than investing blindly in any penny stocks.
Quick fluctuations are part and parcel of penny stocks. It is a salient characteristic of penny stocks. So when you invest in penny stocks you have to take this factor into consideration. A big win can quickly turn into a big loss. It implies that you continuously need to review your penny stocks. You need to be aware of the status of your penny stock. When you see big fluctuations, you need to make a call whether to hold your penny stock or whether to sell them off. However, it is a good idea to sell your penny stocks and net in whatever profits you can.
Have Penny Stocks of an Industry that you know well
With respect to Penny Stocks, you make things difficult for you when you select an industry of which you have no knowledge. You are left confused and bewildered and do not know what to do next. So, the solution lies in leaving such companies and industries of which you have no idea. On the contrary, choose penny stocks of such companies or industries that you know well. You stand a better chance to profit when you have penny stocks of such companies that you know well. Select those companies or industry which interests you the most. You read them better and show interest in understanding the dynamics of penny stocks related to these companies or industries.
Do Your Research
Awareness, knowledge, and learning go a long way in reaping big profits from penny stocks. So, make a point to research well before investing your money in penny stocks. Although it is difficult to research and find information related to penny stock companies, but once you get hold of such information, you should make every use of it. It may time but be prepared to invest your time in research. This will finally be profitable for you. You need to prepare a list of the penny stock companies.
Then set various parameters on which you want to seek information. Do your research. Write down your findings and arrive at the final conclusion. Companies which show marked improvement in performance and show low deficits should get your preference with respect to penny stock selection. However, they are various other factors which can be considered while choosing a penny stock. Knowledge is power, and research gives that power to you. So do your research to profit from investing in penny stocks.
Don’t Listen to Company Management
The world of penny stocks is murky. This is a fact. However, you can still overcome this drawback and profit from trading in penny stocks. One of the prime things you need to take care while trading penny stocks is that you don’t have to listen to company management. In other words, you don’t have to take their words for granted. You invariably don’t need to trust them blindly. Instead, do your homework and come out with correct findings about companies rolling out penny stocks.
Company Management main objective is to get their stocks up for grabbing so that they can raise money and are successful in staying in business. They present a lucrative picture to investors through promotional campaigns and press releases. However, you have to be careful of such moves by Company Management. Make your own set of priorities and do the necessary study before making the final move of selecting penny stock.
Be Careful in Choosing Your Penny Stock Broker
Another important tip comes your way with respect to profiting from penny stocks trading. You should be careful while choosing your penny stock broker. The reason is pretty simple. Many penny stock brokers are seen placing extra charges for trading the cheap stocks. So you need to clarify the charges and costs related to trading penny stocks from each of your potential brokers. You should go with the broker which has the least charges for trading penny stocks. Otherwise, you simply erode your profits or increase your losses.
Stick with Penny Stocks that have High Volume
This is one of the best success rules while trading penny stocks. If you are looking for earning profits with your penny stocks, then you should stick with stocks which have high volume. To make things safe, you should choose such penny stocks which are traded at least 100,000 shares a day. Moreover, experts are of the opinion that traders should prefer penny stocks that have a price tag of more than 50 cents per share. The reason is obvious. Penny stocks, which are priced below 50 cents per share, and are traded for less than 100,000 shares per day are not liquid enough. In fact, you can find it extremely difficult to sell your shares (penny stock). Thus, trading penny stocks with low volume is highly risky. So you should focus on penny stocks that have high volume.