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However, because it is difficult to track changes in
fractions of a penny, there simply isn’t enough data to be able to
analyze. Therefore, you have to keep an ear to the ground when you trade
penny stocks.
One of the biggest forces that
drive penny stock prices is hype. Whether it’s online in discussion
forums or chats, or offline with publicity and press, hype can cause
swings in penny stock prices.
Are you looking to trade penny stocks to earn a good return on your money?
Penny stocks can be profitable for some, but it can also be a money-losing
experience.
What should you watch for when you trade penny stocks?
What are some strategies that professionals and amateurs use when dabbling
in the penny stock trade?
One technique that some experts who trade penny stocks implement is to
focus on a particular stock. Get to know the stock inside and out; that
is, get to know the company behind the stock, any news about that company,
and anything else that might affect the stock price. Target one stock,
listen to the buzz, and see how the stock responds. The louder the buzz
gets, the larger the potential for a big price swing.
Many people who trade penny stocks are small-time investors who don’t
have more than $1,000 of investment capital. These people trade penny
stocks because it gives them more shares for the money.
Where they might be able to buy dozens of shares in a major exchange such
as the New York Stock Exchange, they can buy hundreds when they trade
penny stocks. The potential for loss is big, however. It’s almost closer
to gambling than investing. The money used is strictly risk capital. Once
the money is gone, it’s gone.
Another subset of people that trade penny stocks are amateur investors who
use the buy and hold strategy. They purchase a stock and retain it for
long periods of time, hoping that the stock skyrockets at some point in
the future.
Unfortunately, this strategy hardly ever pays off in the way that the
investor had hoped. In the long-term, the stock could end up being
completely worthless.
Trading penny stocks can be a profitable, and even fun way to invest. It
certainly isn’t a traditional method of investing, and is unlike old
standbys such as bonds and mutual funds. However, trading penny stocks
isn’t for all people.
You should have a high tolerance for risk, a willingness to analyze every
minutiae of your penny stock, and some intestinal fortitude. Have fun with
penny stock trading, but don’t expect to stumble into the next WalMart
for pennies on the dollar.
And remember, as with anything else in life with high potential for gain
there is also high potential for loss. Do your homework, follow your
rules, and plan to prosper.
By:
Spencer
Soros
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