Penny Stock Advice

Penny Stock Advice

Penny stocks are any stock that sells for five dollars a share or less. Some people consider this an arbitrary amount differently and would say that $2 would be a better yardstick, but, whatever the definition, these are shares usually traded outside of the major exchanges. They are often volatile and unpredictable and their performance is very difficult to monitor or foresee.

It’s very similar to the $2 window you find at the race track.

People today have been trading penny stocks online since the really formative moments of the internet, and nowadays it is a simple point for anybody who determines they want to get involved to initiate online trading.

Always remember that when you start trading penny stocks that it is always somewhat of a gamble and it doesn't matter if you are experienced or not. You need to have some money to invest and it should be money that you can afford to lose. Bear in mind the worst case scenario - i.e. that you could get it horribly wrong and your investment could disappear overnight. Fair warning if you don't want to read any more.

It is fair to say that stock trading at a few cents a share is the most risky investment anyone could make - many experts would say foolhardy in the extreme. The temptation to buy thousands of shares for a few cents is one that often results in many people losing their shirts.

There are many stocks that you will find that sell for less than a penny; these stocks may have millions of shares outstanding and it is very unlikely that you will ever make much of a profit on them in spite of what some may say. Establishing the likely performance of these stocks is usually virtually impossible as often there is very little information available on the companies to do any kind of meaningful analysis.

There is no doubt that trading penny stocks is a risky investment, but if you enjoy an adrenalin rush, then it may be just your cup of tea.

Many newsletters and emails will advise you to buy certain stocks that they claim are sure-fire winners. There are plenty of sharks out there who will engage in the practice known as "pump and dump", whereby they will attempt to generate unsubstantiated hype about a particular stock in the hope that there will be a rush to buy, enabling them to sell on their worthless holdings to unsuspecting hopefuls.

You really must exercise caution and do your own "due diligence" - if you don't, you will soon end up regretting impulsive penny stock purchases.

Trading stock online is not difficult, and once you have a basic understanding of how it works and decide to give it a try, you will need an account with an online stockbroker.

The way it works it that you place an online order to buy a particular stock and then the stock gets bought by the broker in your name and account following any selling or buying instructions. The broker makes a commission on every stock that you buy or sell. .

You don't have to wait long for something to happen when you invest in the pennies because they move fast and the results are rapid. It is true that he rewards can be tremendous - it is entirely possible to make hundreds of dollars in a day. By the same token, get it wrong and the losses can soon mount up too.

Day trading is not always profitable, but it's always risky. Day traders buy stock and aim to sell it on the same day for a profit - the age old buy low, sell high strategy. Of course, if the stock price falls, you have a decision to make - sell it at a loss, or hold on in the hope that prices will recover and you can mitigate your losses. Stop loss order often fail and in most cases, the stock never recovers and you are left holding the proverbial bag.

Not every stock you buy will be a winner. So you must be careful not to leave your risk capital in one stock, which may make it impossible for you to make any other trades until that stock is unloaded.

Having all your eggs in one basket is therefore not a great trading strategy.

This can be a problem for those with limited risk capital. There is little point buying so few shares that even if the price rockets upward, you will make only a few dollars - you must also remember to deduct brokerage fees from overall profits too.

You should never buy less than 100 shares on any trade with the pennies since you are working usually with a small amount of risk capital. For example, if you can secure 300 shares and the price rises by 25 cents, you will net yourself only $75 less any commissions - hardly earth shattering. On the other hand if the stock value increases by a dollar, you have $300. The basic math is simple enough, so you need to look carefully at whether an investment is likely to be worthwhile relative to the amount you are able to invest.

Having a lot of risk capital is an advantage on one hand while if you lose it is a huge deficit.

Opening a trading account is straightforward enough once you know the kind of account that you need. For a simple individual cash account some brokers will require a minimum deposit and others will not. Shop around to find the best deal for your own personal circumstances. Charges will vary too, and these all affect your bottom line, so make sure you know how much each trade is going to cost you.

It’s not all gravy when you make a profit. You have to deduct any costs involved like broker’s commissions, etc.

You should never invest with cash that you cannot afford to lose because you cannot win on every trade and you may have a string of losing trades. Sit back and have a good think about what you are planning to do and what you hope to achieve through your investments. If you are thinking of day trading you will need to be in a position to monitor your stocks throughout the trading day - if you are not going to be able to do this, you will not be able to sell when the need arises - i.e. if the price should spike briefly.

If you want to start trading penny stocks online, read up on the subject carefully and learn as much as you can. There are plenty of helpful websites such as this one where you can begin to learn and I have also included some useful products below for those wanting to learn more. Never let anyone tell you that it's as easy as falling off a log though - if it was, we’d all be millionaires by now!

Once you have the knowledge you need, then it is time to open an account and start trading.
To gain that knowledge you may need some help and I have selected several online courses and programs that will enable you to avoid losing your shirt in the penny stock market. Here's the list of the products I have reviewed in subsequent pages of this blog:

@ Penny Stock Prophet
@ Day Trade Penny Stocks
@ Penny Stock Newsletter
@ Microcap Millionaire
@ Penny Stock eBook

Do not attempt to “play the market” without investing in one of these products. They will save you a lot of money and avoid some panic attacks. Read and learn before you attempt to invest in the very risky but extremely lucrative penny stock market.
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