Investing for Beginners – Investing in Penny Stocks

investing for beginners

Investing in penny stocks can make you rich shortly. However, it also can make you lose all of your money in a sudden. Here, we provide you 5 important opinions to lower the risk.

  • The Reason Why We Can Invest in Penny Stocks. investing for beginners

    • We all wish to invest in the next Microsoft or the next Apple, the truth is, the chance of you finding that once in a lifetime success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they just don’t have a business plan which is good enough to persuade the investment banker to invest them for an IPO. So are they bad companies? The answer certainly is “NO”, but it should make you realize that the kind of company that you are investing in.

  • Trading Volumes.

    • When you decide to invest in Penny Stocks, you have to consider how to sell the stocks at first. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price. investing for beginners

    Looking for a consistent high volume of shares being traded is important,but Looking at the average volume can mislead you. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to make an acceptable rate of return, you need steady volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at.

  • Does the company know how to make a profit? And why they lose money?

    • Its important to look at why the company is losing money. Is it manageable? Will they need further financing (that would dilute your shares) or will they have to seek a joint partnership that favors the other company? investing for beginners

    If you want to lower the risk losing your capital, and increase the odds of a much higher return. You need to make sure the company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value.

  • How did you find out about the stock?

    • Most people decide to invest in which penny stocks through a mailing list. In this way, you will find plenty of excellent penny stocks, however, you will also find plenty of bad ones which are pumping and dumping. They, along with insiders, will load up on shares, then pump the company to unsuspecting newsletter subscribers. Finally, the insiders gradually sells the stocks to these subscribers. Obviously,we all know who is the winner.

    Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares ( the shares cannot be sold for a predetermined period of time), others in cash. investing for beginners

  • Have an entry and exit plan – and stick to it.

    • Penny stocks are volitile. They will quickly move up and move down. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

    If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

    How to distinguish the good companies from the bad? Simply subscribe, and follow the investments. Was there a good opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll soon find out if the newsletter is good or bad. investing for beginners

Another important thing is that not to invest more than 20% of your capital in one penny stock. If you put too much money at one deal of investment, you increase the chance to lose your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?