Making an investment in penny kinds is undeniably high-risk, irrespective of what great ‘tip ‘ you may get or from whom. There are a few rules any financier should follow, whether or not they are an amateur or seasoned trader makes little difference when trading in the microcap arena.
Rule one – Never invest any cash you cannot afford to lose!
Let’s accept it, penny stocks are low priced for a reason. Typically the corporations are in the early development stages with small operating history and their power to continue as a doable business regularly in question. As a consequence, their trading can be occasionally at best and volatility should be anticipated. At any specified time the company could probably go into Chapter 11 thus leaving their stock pointless and in several cases a trail of backers 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 a few promotional 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 ‘.
Though it can be hard to establish if a stock is just be pumped up in price so sellers can blow out of their stock a good indicator is sometimes a vast amount of volume coming into a stock with little share price movement to follow. In a number of cases tiny share movement could be a result of a sizeable number of issued shares and in other cases it may be a suggestion of a big seller with small regard to share cost. Do yourself a favour and ensure you have access 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 close watch on how much purchasing is wanted 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 lots of free alert services that are credible and issue great picks every now and then. Begin following a few corporations and maintain a record of which of them are solidly picking winners. By doing this, you can bring down the amount of leg work on your end and, instead, rely on mavens that have done their required groundwork before exposing a company to their network.