The insiders guide to penny stocks to watch”, or “Sign up to be a gold member to get the secret information on the top penny stock pick” Yes I’ve been there before too, day dreaming that I can invest a $100 in penny stocks and then it would miraculously become $1000 or $10,000. Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 3 tips will help you lower the risk of one of the riskiest investment vehicles.
Tip One of penny stocks to watch Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker's money for an IPO. This doesn't make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.
Tip Two Trading Volumes penny stocks to watch
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn't trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding "dead money", where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.
Tip Three Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?
If the company on the “penny stocks to watch list” knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.
However, it just take time to realize that these “penny stocks to watch” membership websites recruit a large amount of members to sign up for their insiders list, and then when large amounts of people buy the stocks they insist on, they will profit a bit. However, the penny stock market is VERY volatile, and you have to watch it, or else you’ll lose more than you earn. The person really profiting is the one whom is collecting the membership fee. If you want something real and secure to invest in, learn the investment strategy of the rich. You think Warren Buffett watches the penny stock list? He doesn’t even read Wall Street.
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