Top 5 Investment Tips On Penny Stocks

Putting your investment in penny stocks gives every trader an ideal chance to significantly enhance their profits rate; nevertheless, it is worthy to note that the same investment can provide a similar platform to lose trading capital within a jiffy. Hence, we have highlighted five useful tips which will guide you on how to alleviate the risk of getting involved a tricky stock market like Penny stocks.

1.    Consider Penny Stock as a penny for a motive

Almost every individual imagine investing in the subsequent Microsoft or the impending Home Depot. However, in reality, the chances of you securing one in ten years of success story are limited. Such companies are either as a beginner, they bought a shell company since it was more affordable than an IPO, or they lack a business plan sufficient to back up an investment banker’s fund for an IPO. Take note; they should not be judged as a bad investment as a result; instead, you should be realistic concerning the type of organization you will be investing with.

2.    Trading Volumes

Endeavor to search for a consistently high volume of shares which are being involved in dealings. You can be misled by looking at the average volume. For instance, in a case where company A deals one million shares today, and choose not to trade for the remaining days of the week, averagely, the daily share will stand at 200,0000. To get in and out at an ideal level of return, there is a need to secure a consistent volume. Also, check the number of trades on a daily basis – is there one insider selling or purchasing? Endeavor to check for liquidity first. In a case where there is zero volume, you will possibly result into holding "useless money," where the only means of getting your shares sold is to unload at the bid, which will place further selling pressure, leading into the even lesser selling price.

3.    Is the company well positioned to generate profits?

Although it is not common to see emerging organization running at a loss, it is pertinent to check the reason behind their loss of money. Is the brand manageable? Is there a need to look for more financing – leading to dilution of your shares – or is it necessary to check for joint partnership which support the other brand?

In a case where your brand knows the ways to generate profit, the organization can use that money in developing their business, which ultimately enhances the value of the shareholder. It is necessary that you perform some research to find these companies because when you do, you reduce the chances of capital loss, and increase the opportunity for a higher return.

4.     Design an exit and entry plan, then abide by it

Volatility is one of the qualities of Penny stocks. They tend to rise rapidly and fall quickly too. Put in mind that if you purchase a stock for $0.10 and sell for $0.12, it implies that you have achieved a 20% investment return. On the contrary, a decline of 2 cent means you have lost by 20%. Most stocks are being traded within this range daily. In a case where your capital of investment is $10,000, if you lose by 20%, it means you have lost $2000. By doing this five times, you will be out of your capital. Hence, keep your stops nearby. Whenever you get stopped, make sure you shift to the next chance. You are being informed of something by the market, and regardless of whether you accept it or not, it is best that you pay attention and listen.

If your thought is to sell at $0.14 and its rise to $0.15, it is advisable to either accept the 30% profit or even better, put your stop at $0.12 – while not capping the upside possibilities, lock down your gains.

5.    How informed are you about the stock?

Majority of individuals know about penny stocks via a mailing list. While there are many quality penny stock newsletters, similarly, there are many who performs pump and dump. With the stock newsletter, they will hold shares, then, start to pump the organization into unsuspecting newsletter subscribers. Such subscribers purchase when the insiders are selling – you can imagine who wins.

Well, not every newsletter is terrible. Our eight years of experience in this sector have made us seen some of the corrupt, and dishonest organizations and promoters. Most of them are paid in shares, others in restricted shares – a pact in which the shares cannot be sold for a stipulated period – while some receive cash.

How do you recognize the good organizations among the bad?

Just subscribe to and trace the investments. Check for the presence of legitimate chances to make money, find out if they have a track record of giving subscribers great opportunities. By then, you will begin to know if you have engaged a good newsletter or not immediately.

Also, it is advisable to not invest beyond 20% of your total portfolio in penny stocks. This way, you will be investing to generate money and keep capital to go for another investment. In a case where you put a significant portion of your capital at risk, the chances of losing your capitals will increase. If the 20% involved develops, you will have more than sufficient money to generate an excellent return rate.

Without a doubt, Penny stocks are risky, so why place all your fund at risk?