Buy Penny Stocks – Only Some Traders Know How To
In short, you must turn off your emotions and execute a disciplined trading strategy. Which means you need to know when you’re going to buy and when you’re going to sell your stock before you call your broker. For some traders their strategy is simple – buy low, sell high. But unfortunately, it’s not always that easy.
One important aspect of a successful trading strategy is to make sure your investments fit well into your overall financial needs and goals. And as they establish investment goals, investors should consider their risk appetite. In general, penny stocks are more suitable for investors with a higher risk tolerance.
To successfully buy penny stocks, traders should first become aware of the risks associated with a particular penny stock investment. Overall, many penny stocks have low trading volumes which can result in extreme price volatility (which offers the potential for quick gains – or losses), and possibly makes it difficult to sell the stock exactly when you want. Also, information is hard to come by on many smaller, penny stock companies.
Then there are different types of penny stock investments. Some penny stocks are shares in a growing company that could be a great long term investment.
Other penny stocks are shares in companies that are in an early development stage – or even essentially shell corporations with little intrinsic value. These penny stocks are sometimes subjects of investor awareness programs which can greatly increase trading volumes and prices. These promoted stocks offer the chance for extreme profits in a short period of time, but they also tend to crash suddenly. So in this environment of high risk, high potential reward, investors must take steps to protect themselves and maximize their chances to make money.
Please see our article “Navigating Promotional Stocks – Cashing In” for some tips on trading in these stocks.
Some traders may shoot for small gains of 5, 10, even 20% and they might even buy and sell the same penny stock multiple times in an effort to cash in profits as often as possible as well as to decrease their chances of getting caught in a dip with no way out. Others, however, may not have the luxury of continuously monitoring the market or quite simply they might not be satisfied with meager gains that barely break 20%. So they set bigger goals and hopefully set up stop-losses to minimize losses if the stock plummets. These traders want to double, others triple, and yet others are on a mission to the peak and want to rake in as much as 30 or more times their investment.
As you can see all over the Internet, there are dozens, even hundreds of examples of over-the-counter securities that have increased 10, 20, even 30 times the latest dip price. But you can also see from historical data that these explosive gains are most often short lived. Their price almost always falls back to one of the lowest support levels, a phenomenon likely influenced by the laws of supply and demand.
It’s no wonder that when a stock price jumps 30 times a dip price that investors who got in at the dip want to sell, sell, sell. When there is too much selling and not enough buying, the law of supply and demand takes over and in turn the stock commences a nosedive back to baseline.
Trading penny stocks can be profitable, but investors must know the risks and how to minimize their chances of loss. Find out more on this topic by reading about Volatile Markets and Understanding Stocks.
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