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Penny Stock Investment Strategies

Updated on June 4, 2012

Ah! Penny stocks we love to love them and love to hate them. If, you have ever dealt into the dark underworld of penny stocks you know what I mean. But, there is something still fascinating to them for many people. Many have even heard of people making substantial investments that have fully turned them into millionaires overnight. But, whatever the reason that you decide to dabble in penny stocks there are some things you want to do. So, here are some of the top strategies for trading penny stocks.

Many start this way investing in hopes of making a few extra pennies form penny stocks. Unfortunately, they are a lot different to trade than the leading blue chip stocks on the NADAQ and NYSE. There is a right way and wrong way to trade in “penny stocks” to be successful. Many have seen entire fortunes evaporate overnight in the hopes that one will pay off. So, try not to be that victim when you do.

Here, are three ways to learn how to invest in penny stocks

1. Learn to invest in penny stocks on your own

This is one way that you can invest in penny stocks, but not something I would certainly suggest. There are many who will anyway and it is possible to do the trial and error approach. Some just might end up spending more than they thought to come to the same conclusions you can find for free.

So, look online for an expert that will work with you and teach you how to effectively trade stocks in the penny market. The information is al out there its just finding it that can be a little time consuming. Otherwise, you may have to spend some money on an expert to help you with the investing approach. Either way you are going to have a significant learning curve to learn how to trade effectively.

2. Identifying Penny Stocks

The promising lure of these penny stocks has one complete down fall. That is the lack of information regarding the companies that are behind them. Not many newspapers, analyst or other professionals take the time to follow the majority of these stocks unless there is an immense potential in them.

It is easy with any investment to wipe out your entire capital and not have anything to show for it. So, good rules of thumb are to always use the money you can afford to lose and not vice versa. But, the idea is to protect the little money we are putting in there.

a. So, always remember not to trade stocks that are on the Pink Sheets or on the OTC markets. These have extremely little required information to be kept on them, and there are plenty of penny stocks that do supply information on other exchanges.

b. This helps preserve your capital and help your downside risk on all the stocks you intend to trade.

Following some common sense rules, will help you keep your money and not invest it in scams and other manipulations.

3. Hard numbers

Always base your research on the hard number you are able to get and verify. If, you are interested in a stock and you are not able to get that information on the exchanges or anywhere else then do not try to invest in it. You will be just throwing your money away. If, you want to get rid of your money like that at least give it to a nice charity at least you will be giving it to people that need it.

Always use limit orders when trading in cheap penny stocks. Market orders can be dangerous because of the wild fluctuations that it can have in any second. Once you set your limit do not go much above that or more than 15 cents on the previous day’s close. This will prevent overpaying and protect the little investment money that you do have.

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