If you are looking for great deals in low priced stocks here are a few suggestions regarding how to trade penny stocks. What are penny stocks? Penny stocks are those with share prices below $5 and are generally companies with a market capitalization less than $200 million. These stocks can be attractive for trading because they can be very volatile. Picking the right stock at the right price at the right time can be very profitable. Likewise some of tomorrow?s very big and successful companies are probably among today?s penny stocks. Buying the right penny stock can get you in on the ground floor of an express elevator to profits. Buying the wrong penny stock, and there are many of them, can be akin to throwing money down a rat hole where the critters will just chew it up.
Our advice on how to trade penny stocks starts with a few cautions. How to trade penny stocks is not to trade on the over the counter market. Penny stocks trade on the NYSE and NASDAQ where there are reporting requirements for listed stocks. You will want to look at accurate company financials. You will want to avoid stocks about which you know little or nothing and whose prices can be subject to manipulation by the unscrupulous. For the beginning investor, don?t start with penny stocks even though the price may seem right. Start with a few shares of larger and established companies, typically large cap companies with well known names. Learn how to read balance sheets and understand concepts such a price to earnings ratio, intrinsic stock value, and margin of safety. Learn to do technical analysis on stocks and only trade stocks for which the information necessary for good technical analysis is readily available. When you are accustomed to trading, a look at penny stocks may well be a good idea.
How to trade penny stocks successfully starts with culling out the stocks with the greatest risk. Don?t trade OTC (over the counter) penny stocks. If you buy these it must only be because you are a principal in the company and know its operations inside out. Otherwise there is generally too little useful information available to trade these stocks successfully. Also, avoid companies on the low of end of penny stocks. Any stock with just a few million dollars in market cap may not have much of a chance of survival and will be a waste of time and money. Traders find themselves trading Toyota and its brake problems, trading the GM IPO, or trading banks because they know something about the industries or companies involved. A basic knowledge of what a company does and its market sector is necessary in trading penny stocks too. How to trade penny stocks successfully includes trading in what you know.
How to trade penny stocks successfully comes down to using the same principles that allow you to trade all stocks successfully. Look for companies that generate cash and are increasing their asset base over time. Look for strong products with good market penetration. Look, ideally, for a low share price (That is why you are looking at penny stocks.) compared to the company?s book value and cash flow. Because you are interested in trading instead of long term investing look for changes in the company?s status as well as you short sell a penny stock just as well as a large cap stock. Last in how to become a successful stock trader in penny stocks is to keep your penny stock investments and trades to a small proportion of your portfolio or trading capital. Not putting all or your trading eggs in the penny stock basket is how to trade penny stocks most successfully.
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