 |
|
|
|
If you ask anyone in the finance world what they
think about investing or trading penny stocks,
the answer that you will probably get will be: "Don't do it. You
will lose your money since 90% of penny stock companies are scams.
penny stock companies just want to sell shares
and are not interested in developing their businesses." The truth is
that investing or trading penny stocks is a very risky
business. So here is the most important tip about penny stocks:
Invest only money that you can afford to lose.
If penny stocks are so risky then, why do people invest in or trade
them?
The answer is because you can make a lot of money in a short time if
you know what you are doing.
If you are still reading and have decided that you want to trade
penny stocks, you need the right tools and good advice to help you
survive and even win some money.
Step # 1 - Finding the Right Penny Stock to
Buy
To discover the right one stock, you will have to do some
investigation, or Due Diligence.
The following points will guide you in learning important
information about a company in which you are interested in
investing:
1. Share structure: AS (Shares Authorized) and OS (Outstanding Stock
and Float)
2. Transfer agent transparency
3. SEC filing
4. Financial track record
5. Competitive position in its industry
6. Business model
7. Earnings power
8. Valuation or the potential value of the company.
For example, when looking into share structure what you want to see
is that there is no dilution. A good sign is when the company has
maximized the OS and is close to AS. Watching Level 2 will also give
you good indication if there is any dilution from the company. A
good strategy is to follow insiders who know the company better than
anyone else.
Step # 2 - Deciding When to Buy
After finding the penny stock that you plan to buy, you have to find
your entry point and how to execute it the right way. Following the
trading in that particular stock for a few days together with chart
analyzing will give you a lot of valuable information. At this point
it is highly recommended for anyone to learn some basic chart
reading or at least let others analyze the chart for you. You can
ask for help on many of the popular message boards that discuss
stock trading and chart analyzing. An important tip about how to
execute the trade in a penny stock is: Be very patient and always
try to buy at the BID price.
Step # 3 - When to Sell or The Exit Strategy
The exit strategy is something very personal to different traders or
investors.
It is very important to implement your strategy immediately after
executing the buy order. In most cases, a good idea would be to set
a sell order of 50% of your position at around 20%-30% PPS spike.
Another 10%-20% rise of PPS and then sell another 50% of your
current position and let the rest ride for a while. In general, your
exit strategy should be very flexible and change with news,
momentum, and volume. 90% of the time, though, you should sell at
the ASK so it won't affect the run.
TIP:
Remember always to take profits
|
|
