Penny Stock Investing and Trading
If you ask anyone in the finance world what they think about investing or trading penny stocks, the answer that you will probably get will be: "Don't do it. You will lose your money since 90% of penny stock companies are scams. penny stock companies just want to sell shares and are not interested in developing their businesses." The truth is that investing or trading penny stocks is a very risky business. So here is the most important tip about penny stocks: Invest only money that you can afford to lose.
If penny stocks are so risky then, why do people invest in or trade them?
The answer is because you can make a lot of money in a short time if you know what you are doing.
If you are still reading and have decided that you want to trade penny stocks, you need the right tools and good advice to help you survive and even win some money.
Step # 1 - Finding the Right Penny Stock to Buy
To discover the right one stock, you will have to do some investigation, or Due Diligence. There are a lot of websites that will help you with your DD and you can find a list of useful ones at www.stocks-reporter.com.
The following points will guide you in learning important information about a company in which you are interested in investing:
1. Share structure: AS (Shares Authorized) and OS (Outstanding Stock and Float)
2. Transfer agent transparency
3. SEC filing
4. Financial track record
5. Competitive position in its industry
6. Business model
7. Earnings power
8. Valuation or the potential value of the company.
For example, when looking into share structure what you want to see is that there is no dilution. A good sign is when the company has maximized the OS and is close to AS. Watching Level 2 will also give you good indication if there is any dilution from the company. A good strategy is to follow insiders who know the company better than anyone else.
Step # 2 - Deciding When to Buy
After finding the penny stock that you plan to buy, you have to find your entry point and how to execute it the right way. Following the trading in that particular stock for a few days together with chart analyzing will give you a lot of valuable information. At this point it is highly recommended for anyone to learn some basic chart reading or at least let others analyze the chart for you. You can ask for help on many of the popular message boards that discuss stock trading and chart analyzing. An important tip about how to execute the trade in a penny stock is: Be very patient and always try to buy at the BID price.
Step # 3 - When to Sell or The Exit Strategy
The exit strategy is something very personal to different traders or investors.
It is very important to implement your strategy immediately after executing the buy order. In most cases, a good idea would be to set a sell order of 50% of your position at around 20%-30% PPS spike. Another 10%-20% rise of PPS and then sell another 50% of your current position and let the rest ride for a while. In general, your exit strategy should be very flexible and change with news, momentum, and volume. 90% of the time, though, you should sell at the ASK so it won't affect the run.
TIP: Remember always to take profits.
Happy Trading
Author Bio
Ron Kaye is an editor for Stock Investing and Trading Reports, sharing information on undervalued penny stocks and small caps stocks via email alerts articles and Stock investing discussion Forum.
Article Source: http://www.ArticleGeek.com - Free Website Content
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Why This Bear?
People are constantly asking me why is the stock market going down. What is causing this bear market? It is relatively simple so don't ask an economist.
Where Is The Rabbit?
We need a rabbit!This was a pretty horrible week for the market with two 100-point days and Friday closing on the lows.During these past few days Sir Alan told us things are looking up and the economy is basically strong.
Two for the Money
Look back over the years and try to remember how many different stocks and mutual funds you have owned. Suppose you had owned only 2 different equities during that entire time.
How Much Money Can I Make With Trading? What Account Size Do I Need To Start?
What account size do I need?How much money can I make with trading?First of all, let's clarify a common misunderstanding: You never risk your full account size. You always have a "catastrophic stop", and it is important to define the "ruin" before you start trading.
Investing in Stocks and The Game of Monopoly
To begin, you might look at playing the stock market as though you were playing a game of Monopoly. That's right; for playing the stock market 'game' is not unlike playing a game of Monopoly.
Which Way The Market
I am hearing predictions by brokers, financial planners, talk show hosts and the talking heads on TV that the market is going back to its old highs - DOW 11,700 and NASDAQ 5000 here we come.It seems to me that in 2000 I heard these same people saying there was no top to the market and were looking into their crystal balls for DOW 30,000 or some other fantastic number.
Index Fund Trading Using Technical Analysis and Swing Trading Strategies
Index Fund Trading can be one of the most profitable..
Commoditizing the world
Let's discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product.
One Way Street
Ever turn down a street, get half way and suddenly realize it is one way and you are going the wrong way? Is that the way you feel when you look at your stock brokerage statement?In either case don't panic. You can get out of that one way street by carefully backing out.
Humpty Dumpty the Stock Market Falls Down
Humpty Dumpty had a great fall and all the King's horsemen could not put Humpty Dumpty back together again.The Stock Market has had a great fall and all the brokers, CEOs, analysts and politicians have not been able to get it back up again.
Buying Mutual Funds
It looks like the market is ready to start up again so it is time to buy mutual funds, but you only want to invest your money in funds that go up. First, you don't want to start with a loss so be sure to purchase no-load mutual funds.
Play another Day
Money management starts with protecting your capital, realizing profits and cutting losses. As I have stated in the past, without cash, you can't invest.
Never Fall In Love!
Recently I watched my favorite football team lose a vital game.I simply love this team.
Long-Term Investment In Todays Market?
The stock market is very unstable at this time going up and down while interest rates are so low you want to be a borrower and not a lender. Would you like some suggestions on how can you get the most out of low interest rates while being assured your principal will not disappear while you are trying to make some money? Of course, there is always the danger of borrowing the money and then spending it just because it is there.
Stock Market Insanity
Let's first define insanity. It is doing the same thing over and over and expecting a different result.
Buy Low - Sell High
Now where have I heard that before? I know. It was my broker.
How to Read an Annual Report
Every publicly traded company is required by the SEC(Securities and Exchange Commission) to provide annual reports to it's shareholders, and the general public as well. These annual reports contain very important financial information, as well of summaries of the companies progress made by the CEO, board members, etc.
Perfect Storm
Having lived aboard a sailboat for 2 years I was stricken when I saw the movie "PERFECT STORM". I know these are things you want to avoid at all costs.
Understanding a Stocks PEG Ratio
A PEG ratio cannot be used alone but is a very powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio.
Choosing A Fund
For years I have been saying you must have a fund that is outperforming the S&P500 Index. Well, I've changed my mind.