Very few types of investing can give as quick and high returns as penny stocks can. While they have a huge potential for making a lot of money very quickly, they are also very risky and require some expertise on the investor before they could be invested in. With the right information, you can know exactly which penny stocks to buy and which ones not to waste your time with!
Why Are Penny Stocks Risky?
The main reason why penny stocks are risky is because they have the tendency to drop a lot in a very short period of time. For example it does not take a lot to make a penny stock drop from $0.50 to $0.25. This would cut your investments into half! On the other hand, its’ not difficult for penny stocks to rise from $0.50 to $0.75 which gives you an amazing ROI in a short time of 50%.
How To Maximise Profits On Penny Stocks
To maximise profits on penny stocks, you will have to cut down the risk associated with them.
Many people who trade penny stocks invest without much thought and on gut feeling alone. They always play the offense game and do not know its’ actually a losers game. By offensive I mean taking actions like chasing after stocks, buying stocks already high and trading at expensive valuations. Using these strategies to trade speculative pennies stocks are almost a certainty that you will lose money in the stock market.
To minimise risk, you will need to have a good trading plan to trade pennies stocks. Be aware that trading these stocks could pose more challenging and require different trading strategies than a blue chip stock because of their speculative nature. Test your trading plan robustly by paper trading them before using real money to trade. Also, determine the stock chart pattern and establishing a proper entry point and exit point before you enter a trade is one way to lower the risk associated with penny stocks.
Lastly, doing research on the stock beforehand is another way to cut down the risk associated with pennies stocks. Because they are mostly the stocks of choice among unsophisticated investors, these group of investors will usually miss out on performing the necessary due diligence on these stocks. Commonly overlooking things like share price past trends, company profits, company’s latest developments, material litigations – all this can make a big difference in deciding if the company is worth investing or not.
Conclusion
Penny stocks was something that fired me up during my younger days. The thought of being able to find the next “big thing” when investing in it during its early stages can really entertain one’s imagination. Furthermore, many people are attracted by the chances of a large increase in profit in a matter of days or at times even hours than the thought of investing money in other type of shares for a longer period of time. The key to success in trading penny stocks lie in cutting down the risks to a minimum associated with investing in them. Happy trading!
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