3 Reasons to Fear Penny Stocks

Having made a career, not to mention an enormous following, around the investment auto known lovingly as ‘penny stock,’ it may appear strange for me to alert you to fear these hopeful investments. Yet, warn you I will, because I’ve seen 3 major reasons why these sub-$5 shares could be too dodgy for you.

Folks becoming involved with penny stock investments are buying the wrong corporations, for the incorrect reasons, and then using the incorrect trading strategies with the shares.

The Wrong Penny Stock Companies:

Regularly people invest in a ‘hot’ penny stock because they heard about it thru a friend, or it has got a good story behind it. Infrequently do these hyped-up investments have strong fundamentals or growth of income and share of the market.

Too often people become involved with these shells of companies just because they believe the business objective is an excellent idea, or will end in large income if they are successful.

Of course, if you think that all it takes to make money in the game is to get a great story, then you’ll deserve what you get.

The only way to become involved in any sort of investing is to find top quality, well run firms that have rock solid basics and proved management teams. Look for those investments that pass Leeds research ( the standard research methodology for low-priced shares ). The Wrong methods for Penny Stock:

Once folk choose a penny stock that they need to buy ( or choose when they need to sell one ), they regularly use poor trading methods. As an example, most traders sell or buy all their shares at a previous time, rather than wobbling the trades. Selling part of your holdings over time and in 3 or four trades is frequently better than just dumping the whole lot immediately.

With a limit order, you decide on the price you are prepared to pay ( or at which you would sell, if you’re on the selling side ). You can find out more about buy and sell order types from your broker, or on the web.

By concentrating to, and so hopefully avoiding, the three reasons to be afraid of penny stock, you may then dramatically enhance your percentages of trading success with these low-priced investments.

Particularly, you will be one of the few who make dramatic profits from good, top quality low-priced investments that may make you extraordinarily well off, while avoiding the downfalls that give the sub-$5 investment car a bad name.

Author
David Smith is a Trader
and located in North america and Asia.
smallcapreporters.com

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