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.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.