Penny Stocks, Featured Penny Stocks, Hot Penny Stocks, Penny Stocks to Watch

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Investors Choose Small Cap Companies For Big Gains. Investing in Penny Stocks could create your big break, but there is a downside…
While investing in penny stocks entices traders with the potentially to suddenly make a great deal of money, there is a corresponding possibility of rapid and significant loss. Investing in penny stocks is a risky move, but there are ways to soften your risk.

1. Remember why penny stocks are worth so little to begin with. While everyone thinks about investing a small amount and emerging with a fortune, and it does happen, there is no guarantee it will happen. Companies that make penny stocks available for investment either do not have a business plan that is intriguing enough to attract money from investment bankers or they decided to put money into a shell company that cost less than an IPO. While these reasons don’t inherently make penny stocks a poor investment choice, they do mean you should be realistic about the stock’s potential.

2. Because looking at average volume can be misleading, when you are trading volumes  you need to ensure that you see a steadily high volume of shares of the penny stocks being traded. For example, if “WXYZ” trades 500,000 shares on Monday but then doesn’t trade again all week, the daily average is still 100,000 shares. That’s not that great, because you need reliable, constant volume. As such, you should pay attention to how many trades there are every day. Be wary of inconsistencies. Also, pay attention to liquidity, because if there isn’t any volume, you are stuck with “dead money.” This is unfortunate, because it means you can only sell shares by dumping the penny stock, a situation that forces you into a lower selling price.

3. As simple as it sounds, make sure the company knows how to do business. This doesn’t necessarily mean that they should be showing profit immediately, because it can take start-up companies a little while to make it out of the red. So, if a company isn’t yet making a profit, look closely, and try to find out why this is. It may be because the public hasn’t caught on to the miracle product or magical source. It might take a little while…do you think they can carry the debt?…or, do you think they will need more financing?…this move could decrease the value of your own shares. Generally speaking, is there any reason to believe that the company is going in the wrong direction? If there is not such a reason, then they should be able to use the money they get to expand, which will increase the value of your penny stocks.

4. Have plans for how to invest and extract yourself from that penny stock investment. Because penny stocks are so unpredictable, changes can come very quickly. For example, if you buy a $1 penny stock and sell it at $1.50, that’s a 50% ROI. Conversely, if it drops down to $0.50, that’s a 50% loss. If you’ve invested $5,000 and this happens, you’ve lost $2,500. Do it again and you’re out of money. So, keep your stops close to your initial penny stock investment. Don’t let the penny stock get too high or too low. When it reaches the threshold you’ve set, sell.

5. Lastly, pay attention to how you learned about the penny stock. For most people, this information comes from the Internet, or a penny stock newsletter. While some are penny stock newsletters worthwhile, a number of them are crap. Bad newsletters will push a penny stock hard so that when its readers buy it, the insiders can make a fat profit by dumping their shares.

So, how do you learn to trust a penny stock? Track the business over a reasonable amount of time. If the business seems to be growing, then they’re worth your time. Another tip to keep in mind is that it is never wise to put more than 20% of your portfolio in penny stocks. You want to make money, but you also want to make sure you have capital for other investments.