Just as the name suggests, penny stocks are common price shares of small public companies which are traded at low prices per share. They are also known as nano-cap stocks, micro-cap stocks, OTC stocks, or small-cap stocks. What makes penny stocks different from other stocks is their exchange platforms. In the United States, the NASDAQ, the New York Stock Exchange (NYSE), and other notable stock exchanges are the exchange platforms in which regular stocks are exchanged. On the contrary, penny stocks are traded Over The Counter (OTC), and there is little or no information on these companies that represent the stocks on this exchange platform. Hence, it is difficult to determine the exchange. That being stated, how can you achieve success trading penny stocks? Here are the various tips on how you can profit from penny stock trading.
Trade Low Price Stocks
The penny stock market comprises stocks with diverse price range. However, as a newbie, it is advisable to begin on a small scale. Let’s consider an example:
A trader who is new to penny stock trading may have two shares that he may be brooding over to purchase. The first stock may be worth $12 and the other one $120. With the first stock, there is a lesser amount of risk involved in comparison to the second stock. Hence, you can hold a position and stay relaxed as the stock closes in profits.
Another example to consider: A trader who wants to invest in the stock market with a fixed amount of $1,500. If the trader spends in the $10 stock, he gets 150 shares, if he invests in the $50 stock, he gets 30 shares, likewise, if he invests in the $150 stock, he gets 10 shares. In a case scenario where the price of the stocks increases by $3, he will make a profit of $450 on the $10 stock, $90 on the $30 stock, and $30 on the $150 stock. This implies that the $10 stock has the tendency to triple in value than the $150 stock. However, the probability of the $10 stock falling in price is higher when compared to the $150 stock. Nevertheless, your risk and loss are minimized.
Conduct An Extensive Research
As discussed earlier, there are significant downsides to penny stocks, which includes zero transparency. Hence, it becomes tricky to watch out for undervalued stocks. It can be likened to one looking for a needle in a haystack. Most traders search for promising penny stocks they can trade with. That way, their source of income keeps flowing. Therefore, it is necessary that you make extensive research on the penny stock you want to trade. Part of what you need to look into may include the stock company’s background, inception, business sector, growth, and dominance in the market.
Bear in mind that you may need to go through 20 – 30 companies before you find that perfect opportunity. Do not let this lengthy search discourage you or get you distracted.
Analyse The Trading Volume Numbers
We will be looking into another example shortly. Let’s assume a trader, say Miss XYZ purchased 25 shares of a $10 stock sometime in the past. Presently, the price of the stock has increased to $25 per share. It is obvious that there are some profit being made from the stock, and then she sells all the shares, but alas, there is no one to buy her shares.
Another challenge faced in the penny stock market is that they are represented by companies with fewer reputations or those that have poorly performed in the market. This means that a majority of individuals will not be interested in risking their money by purchasing those stocks. In the real sense of it, the company shareholders would be the ones to promote the company’s stock.
Due to illiquidity, traders find it hard to make profits trading penny stocks even when the numbers indicate so. It becomes nightmarish when a large number of shares are involved. To prevent such from happening, it is essential that you analyse the trading volume numbers of the shares you intend to purchase. Your search should extend beyond a year. In a situation where the trading numbers are low, then it is advisable to avoid them.
Diversify Your Trade
One important thought traders have on their mind is the number of shares that should be bought and the number of sectors the shares should be invested in. There are various sources that will provide you with answers. Whatever the answer is, it is important to know that the risk/reward ratio is vital. So if you want to diversify, it would be best to do so in an investment field. The reason for this is that if you encounter a loss in one sector, other sectors can recoup your loss and even make extra trading profits for you.
Take Affordable and Calculated Risks
There is no investment without its risks. The same thing applies to penny stock trading. There is no guaranteed profit. Therefore, you should ensure that your investment is one you can afford to risk. Life-changing funds that affect your education, wedding plans, health treatment and others, should never be used to invest as a negative turn out can be disastrous. Try as much as possible to curb your losses to the barest minimum.
Tim Sykes Millionaire Challenge
The Millionaire Challenge is ideal for traders that want to greatly increase their learning curves and boost their trading careers. Only those who are dedicated are allowed to be members of this program. Also, one would need to go through an application and interview process. The features include in this program include:
- 6000+ video lessons
- Over 800 webinars from Tim and his team
- Live webinars (offered by Tim and his top students)
- Tim’s Alerts and TimChallenge Chatrooms
- 14 educational DVDs
This plethora of valuable content may be overwhelming to anyone new to the program. However, each of them is worth studying as it will expose you to how Tim understands and relate to the stock market. If you wish to know to get on this program and improve your trading techniques and strategy, please visit this link: Timothy Sykes millionaire challenge: Profiting with penny stocks