Penny stocks are generally categorized as being stocks that are traded for less than $5 in a company that is worth less than $200 million. Obviously the lure of trading penny stocks is obvious. When a stock moves in a positive direction for your holding then the more shares you have the more money you will make.If your penny share moves 10p then you will make that amount on every share you own and because you bought the shares at an extremely low price you will make much more money on a stock that would have been more expensive.
The problem with penny stocks is that they can be volatile and movements are rapid in both directions while liquidity can be poor. Follow the five tips below before considering trading in penny stocks:
1. Understand the penny stock market.
Be sure you understand why investors consider penny stocks to be dangerous and why all, except the most well-advised and well-trained investors, only keep a small percentage of their portfolio in penny stocks.
2. Know from the start just by looking at them which stocks to avoid.
A good penny stock trader will immediately know which stocks are bad bets and he or she will avoid them at all costs. This skill is essential if you wish to make money from penny stocks trading. Avoid free penny stock info unless you fully trust the source!
3. Paper trade first!
Practice, practice, practice. Like everything in life you get better the more you do something. Trading is no different. Place "pretend" trades first and write down on a piece of paper exactly when you would have placed a real trade and went into the market. Then, when you decide to liquid your position, take note of the selling price and calculate] your profits (minus the broker's commission).
A word of warning - don't cheat and don't trade yet no matter what hot penny stock you have found (there will be plenty more believe me)!
The whole idea is to get practice so when you do it for real you get exactly the same results! So just follow your penny stock picks and do everything you would if you were trading for real except do not use any money (in other words don't buy anything)
4. Look for companies that have been consistently growing.
Companies that are growing and do not have huge debts are a good bet. Avoid companies with heavy debt as one bank decision could send your share price plummeting!
5. Get help and training.
Consider training with someone who already makes millions trading penny stocks! Trying to trade in such a volatile market without any knowledge, experience or at least the knowledge of other people's experiences will most definitely end up with you losing money.
However, getting training from a reliable source, such as the Penny Stock Prophet is the way to making money trading penny stocks.
The above course comes with a full 60 day money-back-guarantee which is all you need to prove the system works by paper trading first!
