Useful Penny Stock Trading Tips From The Pros

Trading in penny stocks has a lot of advantages that you can enjoy once you learn the right strategies you need to employ to get better at it. But how do you improve your trading skills and expertise? The following penny stock trading tips recommended by the pros will point you in the right direction.

Read the Fine Print

Free penny stock newsletters aren’t as good as you might think. While they do provide tips, you shouldn’t be too quick to follow. If you’ve ever bothered to read the emails all the way, you would have seen a little disclaimer at the bottom announcing that this is a paid pitch. In essence, it’s a paid advertisement from a company that wants to get people to invest. In this scenario, two out of three parties benefit. The newsletter senders get paid and the company gets its shares purchased. You, on the other hand, will end up with pumped-up shares based on a false tip. So, the next time you get a newsletter, scroll down to the bottom and you’ll see the blatant conflict of interest.

High Volume Stocks

With penny stocks, you can’t guarantee that you’ll be able to sell. After all, there is a reason why they’re considered penny stocks. The companies are small and, to a great extent, unreliable. When buying, it’s recommended that you only invest in companies that have a minimum average volume of a million shares. Such a high volume is an indicator of high liquidity. Meaning, you can get in when you want, and out when you want. As a trader in higher-priced stocks, you don’t often have to worry about your liquidity, but when it comes to penny stocks, you’ve got to be careful. Otherwise, you won’t be able to get rid of your stock as quickly as you want.

Diversify

As any pro will tell you, you mustn’t put all your eggs in one basket, especially when it comes to penny stocks. The main purpose of this strategy is to ensure that a single price drop won’t severely damage your portfolio. One of the bases covered by the day trading community, Investors Underground, is how to use diversification to your own benefit. You see, diversification can be good for you because it can keep you from losing everything in one trade. However, the more investments you make, the higher your chances of error. Even if the impact is not severe, you might end up losing more than you expect from several small failed investments than from one large unsuccessful investment. That isn’t to say that diversification is bad, though. It can be a lifesaver, but only if you use it right.

Stop-Loss Order

This is another extremely helpful tactic that can help you limit your losses. Picture a scenario where your stock’s price is dropping fast. When do you sell? Should you risk sustaining too much damage in the hopes that the price might go up again? In order to avoid those questions, you can use a stop-loss order. Think of it as a failsafe which is triggered when the price hits a value specified by you at the time of the purchase. When the price of your share drops, your order to sell automatically goes live, making sure you shed them to the nearest buyer that comes your way. The drawback here is that you might lose a little more than expected if the new buyer bids a low price, but the upside is that you get to shed your losing stocks quickly and efficiently. 

Trading Vs Investing

While both involve buying and selling stocks, there is a huge difference between trading and investing. Think of it in terms of relationships. Investing is like going into a long-term relationship, you put in a lot of money in a company to help it grow, and in turn, it will bring you high returns. That’s the case with big companies and high-priced stocks. Trading, on the other hand, is like a casual fling. You don’t see a future with the company, but that doesn’t mean you both can’t have a little fun. If you aim to make the big bucks, don’t play the long game with penny stocks. Small, successful trades are where the money is.

Penny stock trading is a quick and clever way to make money. Not only that, but it’s also very exciting, and with the low stock prices, you can start with a small sum and make your way up to the top. It shouldn’t be hard if you have the right tips and techniques up your sleeve, but one thing you should know is that practice is essential. You can learn about the winning strategies all you want, but without application, you won’t achieve true success.