10 Tips To Keep In Mind When You Trade In Penny Stocks
Trading in penny stocks can be a lucrative exercise,
given that you are aware of the dangers and know what you’re getting yourself
into.
Don’t Let Success Stories Be Your Motivation
Don’t believe the penny-stock success stories that
you’re reading on emails and social media. Penny stocks can’t be invested in
like when you’re buying lotto tickets. Instead, put your money into profitable
penny stocks that are making 52-week highs and that have substantial earnings
growth.
Read The Disclaimers And Ignore Tips
Penny stocks are sold regularly via tips that are
distributed through newsletters and emails. If you pay close attention to the
disclaimers, you’ll notice that whoever is sharing the newsletter gets paid for
pitching the stock since investors necessitate exposure for their company.
There’s nothing wrong with doing so. However, some newsletter is advertising
false information and are making empty promises.
Sell Promptly
One of the lucratives of penny stocks is then you
can easily make twenty to thirty percent within a few days. If this is the
case, you must sell quickly. If you consider the penny stock that you’re in is
getting pumped up, its best to take your profits and move along.
Don’t Listen To Company Managers
Stay clear-headed, and don’t believe everything you
hear from penny-stock companies. Keep in mind that most companies are
attempting to get their stock up to raise money and stay afloat. There is no
dependable business model or precise data; therefore, many penny stocks are
scams that are created to enrich insiders.
Avoid Selling Short
Even though shorting pumped-up penny stocks may look
like a lucrative option, steer clear from it. Penny stocks are too unstable,
and if you land yourself on the wrong side of the trade, it may result in you
losing fifty percent or more on a short sell. It’s best to leave shorting penny
stocks to the experts. Have a look at this list of penny
stocks to invest in 2019.
Pay Attention To Penny Stocks That Have A High Volume
Choose stocks that trade at least 100 000 shares per
day. Trading with low volume stocks can make it tricky for you to get out of
your position. Also, try to stick to shares that sell at more than fifty cents
a share. Stocks that trade at fewer than 100 000 shares per day and are priced
under fifty cents a share, are not sufficiently liquid to stay in play.
Try Using Mental Stops
Due to bid-ask spreads being high on many penny stocks
(as much as ten percent), hard stop-losses can end up losing you a lot of
money. Even though it necessitates more focus, try using mental stops. Say, you
want to make a dollar per share on a three-dollar stock, cut your losses at
twenty cents, therefore having a 5:1 risk-reward.
Aiming For The Best
It’s best to purchase penny stock when they have
significant earnings, or when they are earning 52-week highs on volume that is
reaching a quarter-million shares per day. They are easily found if you look. The
trick is to find stocks that reach 52-week highs that aren’t because of
pump-and-dump schemes.
Avoid Trading Significant Positions
Make a mental note of not trading more than ten
percent of the stock’s volume per day. Also, limit your share size to get out
of the stock quicker.
Don’t Get Too Attached To A Stock
Once you’ve entered the penny stock world, remain
cynical, do the research, and diversify, even if a family member or friend is
touting the stock. Penny stocks have earned a bad reputation, therefore be
careful.
