Penny stock investing is where investors can see big gains fast, but also big losses fast. Investors bet on the future success of smaller companies, called "penny stocks" because the prices of each share is often very low -- mere pennies, in some cases. Here is a guide to understanding penny stock investing.
Hot Penny Stocks
A penny stock is considered a "hot penny stock" when its value is quickly rising. Penny stocks are considered "high volatility," meaning that their value can quickly go up or down. They are the opposite of a safe investment. In order to make money on hot penny stocks, one has to buy low, wait for the stocks to precipitously rise, and then sell.
Pick Penny Stocks
There are numerous quick guides online for helping one pick penny stocks. There are also books, trade magazines, newsletters, websites, message boards, and a plethora of other advice out there. No matter what medium is chosen for advice on which stocks are the best, one strategy works for them all. Take six months and "pretend" to invest. Keep track of how much each stock goes up or down and make decisions on when to buy or sell just like it was a real investment. If, after the six month period, the particular source of advice leads to profit more often than losses, it may be best to stick with it. If not, a new source of advice to pick penny stocks may be in order.
Penny Stock Tips
Browser Max, in his book Penny Stock Winners, writes this as his "game plan" on when to sell: "When a stock doubles, sell half your holdings. Track the remainder. When it drops 25% from its most recent high, sell." This is sage advice, as it places limits on natural human greed. If a penny stock doubles in value, one may be tempted to see if it going to triple before selling. Selling half at "double value" ensures a healthy profit, while allowing time to see if the other half really is going to triple. If it doesn't, and falls 25%, than the investor has only lost half as much as they would have if they had held onto the entire penny stock investment the entire time. This simple advice, along with other advanced penny stock tips, can be very helpful.
Penny stock investing is risky because the stocks are of questionable value. A large company has a reputation for value, and a commodity such as gold has a reputation for value. The value of penny stocks is always under suspicion. Success lies in recognizing which stocks are valuable before others do, and then in selling those stocks before they begin to significantly decline. It also relies on a careful consideration of any penny stock tips and a keen eye for when to sell and limit greed.
Sources:
Brower Max, Penny Stock Winners, 2000.
Jared Plotkin - I recently graduated from UC Irvine and I am trying to make a career out of freelance writing. I enjoy writing about a wide variety of ...
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