Penny stock trading can be very profitable and penny stock trading can be a bottomless hole into which you throw good money after bad. How to successfully engage in penny stock trading is to follow the principles that always guide successful trading. Learn the fundamentals of what you trade and use technical analysis of price patterns in order to anticipate sentiment driven price changes. A penny stock is a stock selling for less than a dollar a share. Many of these are companies starting up, devoid of much capital, and struggling to survive. Some have excellent profit potential if they can overcome the hurdles of turning new technology into a salable product and developing the infrastructure needed to find and sell to customers. Learning how to trade penny stocks is perhaps not so hard as finding the right penny stocks. A problem in penny stock trading is the ability of fraudulent individuals to buy and then to hype a thinly traded stock. The individual sells as the stock price goes up and the new investor simply watches his stock price fall back to the original value. The right penny stock will have enough valid information available so that one can trade it intelligently.
Because many penny stocks are thinly traded the principles of technical trading may not apply. In other words there will not be enough people trading to stock for the statistical analysis that lies beneath technical trading tools to work. An exception will be a large cap or mid cap stock that is in trouble. These stocks may have millions of shares and thousands of shareholders. They may trade at fairly high volume as stockowners speculate on whether the stock will recover its former glory or fade into oblivion. Stocks such as Sears, although not technically a penny stock when bought out by K-Mart, was eminently tradable when the news of the takeover was announced. Sear stock soared six fold in on day. Trading penny stocks can be profitable if you choose the right one.
Successful stock trading always requires attention to detail and a commitment of time for research, trading, and reviewing results. The research part is particularly important in penny stock trading. It vitally important that the information upon which you base your trading decisions is accurate. Although technical trading is largely based on the fact that the market discounts the fundamentals as soon as they are known, successful technical trading requires a large enough pool of traders and enough trading volume to make the statistics valid. One can still anticipate price trends and reversals in penny stock trading but it becomes more of an art than a science when only a few traders are involved. Some penny stocks favor the trader with specific, often technical, knowledge. For example, a biotech stock may be more understandable to someone with a background in pharmacy, medicine, or bioengineering. These traders will be more likely to be able to differentiate hype from solid fact in choosing which stocks to trade and how to trade them. As usual we are not suggesting penny stock trading or that one avoid penny stocks. The point is to investigate all trading opportunities and trade
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