Penny stocks trading, is not as easy as it seems. As we all know, stocks that trade on the OTC Bulletin Board and Pink Sheets are very speculative, volatile, and many of them are very illiquid. However, investors are still lured by the low price of the equities and the potential for massive returns. Is finding one of these penny stock jewels easy ? No. Is it impossible ? The answer is no again. To identify the big winners, you need to monitor news announcements, PR’s, message boards, study charts, volume alerts, and subscribe to different websites. As we have mentioned before, forming a list of stocks is very important, even if you don’t buy 99% of the stocks on that list. Once again, having information and an opinion in advance of the trade is most important.
On the flip side here are a couple of classic no-no’s when it comes to penny stocks trading. The first one is not to buy tips. Many of us, including myself have lost money this way. We all know that guy that we see every so often that always says “Buy XYZ, there new product is unreal”. Then without doing one bit of homework, we buy the stock. Now guess what usually happens ? The results are often pretty scary, because these ideas never seem to work.
The second common penny stocks trading mistake, is using market orders. This is especially common with new investors. Now remember, most professional investors don’t use market orders even when they are purchasing super liquid stocks like Cisco Systems (CSCO:NYSE) that trade with tight spreads. Now even if they did use a market order on CSCO, the outcome of the execution wouldn’t be all that much different because of the huge volume it trades. However, when buying many penny stocks, the outcome of your execution can be 5 or even 10 percent higher in some cases, only to fall back lower within seconds. The lesson here is pretty simple. Be patient ! If the stock runs away from you, there will be others.
In closing, penny stocks trading is not an exact science, but adapting these tips will hopefully help you find some hidden winners and trade them properly. Also, please check back for more market reports, penny stock alerts and IPO Market News.
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