Cash In Big With Penny Stocks
Penny stocks have huge potential...HUGE. Many investors bragged that they generate remarkable return and cash in big with penny stocks. Is "cash in big with penny stocks" as simple as it sounds? So what exactly is a penny stock? According to Securities and Exchange Commission, the term "penny stock" generally refer to stocks priced under five dollars. These stocks are riskier than common stocks, but penny stocks can double, triple, quadruple or more in relatively short trading time. Numerous experienced traders make over 500% profit just within a few days. However, high returns normally also means high risk. These are stocks that are sold by smaller companies that are seeking money for expansion. These stocks tend to fluctuate greatly in price over time and have a relatively low track record. Nonetheless, a huge plus of such investment is that you have high leverage by investing in penny stocks, i.e. only have to invest a few dollars to buy large shares. With right guideline, you may minimize your risk and generate great profits with relatively small investments. For a $0.50 penny stock to jump ten-folds to $5 is relatively easy comparing to a $20 common stock to jump to $200! So it's easier to cash in big with penny stocks! Apple Computer was once under $2 and it's over $280 at the time this article is written. You can cash in big with penny stocks just like these investors who bought a great company's stock at very cheap prices.
An important issue with Penny Stocks
Liquidity is an important issue when trading penny stocks. You may see a big transaction during the trading day, and want to liquidate your shares, but it is common that there are very few traders to purchase your stocks. One critical element to keep in mind when trading penny stocks is to make sure there is consistent large amount of shares traded each day. Do not just look at average volume traded because it tends to be deceptive. For example, XYZ company's daily average volume of 300,000 shares can be a result of one single transcation of 1.5 million shares during the trading week. You want high and consistent trade volume stocks for liquidity purpose. A trader who chooses to trade penny stocks must always remember the chances that he may not be able to sell his shares readily. Due to the low liquidity, one day's average, open and close prices, and other values may present big discontinuities. The low liquidity contribute to the large price fluctuation in penny stocks. But meanwhile, the very gapping behaviour presents the potential huge profit (or loss) opportunity.
How to find the best penny stocks?
Penny stocks very rarely provide financial information to the public, which makes researching the stock very difficult. So how do you know which are the better penny stocks to buy? Many people subscribe to penny stock investing newsletters. There are many newsletters available, the question is are they real? One practical way is sign up a newsletter, follow the suggestions by making paper trades. Evaluate your paper trade performances. Trade with real money until you gain experiences with paper trades. Yes, this process takes time, but it is a critical step before you cash in big with penny stocks.
What's Your Risk Profile
Before you are eager to cash in big with penny stocks, it's important to find out your risk tolerance. It should be the foremost task on your to-do-list when formulating your investment strategy. Knowing your risk profile is important when it comes to deciding what investment strategy to adapt will be the most comfortable for your position towards risks. If your risk profile said you are willing to take higher risk for higher potential return (or loss), then penny stocks can be a good investing tool for you. In general, high potential return usually is accompanied by high risk and vice versa. Once you acknowledge the risk factors, and you are willing to take risk for better potential return, then invest in penny stock can be a good option for you, which can potentially give you returns in multiple digits. After all, everyone is different, there is no single investing approach that will fit everybody. Once you find out your risk tolerance, it can help you formulate an investment approach that fits your risk profile. Take myself as an example, based on my risk profile, I will only allocate 20% of my investments in penny stocks, and this percentage can be different for different traders. You are investing for money so it is recommended to preserve capital to fight another battle. Remember, high returns normally come with high risks also.
Good luck trading and wish you cash in big with penny stocks!
