Making an investment in penny kinds is definitely high-risk, irrespective of what great ‘tip ‘ you may get or from whom. There are a few rules any financier should follow, whether they’re a beginner or seasoned trader makes little difference when trading in the microcap arena.

Rule one – Never invest any cash you can not afford to lose!

Let’s be honest, penny stocks are low priced for a reason. Typically the corporations are in the early development stages with tiny operating history and their power to continue as a workable business frequently in question. As a consequence, their trading can be infrequent at best and volatility should be predicted. At any particular time the company could probably go into bankruptcy so leaving their stock valueless and in numerous cases a trail of speculators facing losses.

Rule two – Look for corporations with some trading history.

The concept of getting concerned in a recently traded issue may not work out as well as you’d like if no trading range has been revealed. Instead of thinking you could be getting a reasonable price as the stock just commenced trading you’ll instead be blindsided with concerned sellers needing to use any volume coming into the stock. Your best shot is to show patience. Ensure the stock has several months of a stable trading history. While it is commonly tough to pinpoint the direction of a penny stock utilizing the same technical signals you would use with a listed issue it is best to miss a bit of a move instead of getting caught in a landslide of selling.

Rule three – ensure the company has at least one or two publicity releases already issued.

The truth of the matter is that penny stocks trade based on exposure – meaning what number of folks are finding out about the stock and how good of a tale they have. If the Corporation has at least a few promotional releases issued that often means the management team knows that sharing their story with financiers is vital. It’s also a hint that they care about their share price and are actively working backstage to do the established goals of the company and do their best to form stockholder value.

Rule four – try your best to bypass the ‘pump and dump ‘.

While it can be tough to establish if a stock is just be pumped up in price so sellers can blow out of their stock a good indicator is typically a vast amount of volume coming into a stock with little share price movement to follow. In a number of cases small share movement could be a result of a substantial number of issued shares and in some cases it might be an indicator of an enormous seller with little regard to share cost. Do yourself a favour and ensure you have accessibility to a good Level II quote service so you can watch what market makers are the most active in the stock you are considering purchasing. Then keep a tight watch on how much purchasing is required to have the share price trend up – if you see lots of purchasing and little movement take it as a red flag and keep away from the stock.

Rule five – Subscribe to free stock alert services.

There are plenty of free alert services that are credible and issue great picks occasionally. Begin following one or two corporations and maintain a record of which of them are regularly picking winners. By doing this, you can diminish the amount of leg work on your end and, instead, depend on professionals that have done their required groundwork before exposing a company to their network.

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