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Penny Stock Trading Myths

Updated on May 7, 2012

There are a lot of truths and falsehoods that seem to surround things that people do not understand. That goes for stock trading in penny stocks. First we have to understand the definition of a penny stock. A penny stock is not necessarily a “penny’ although it could be. Let me explain, when you ask some investors what a stock penny is they can say anything from 5.00 dollars and under. Other investment professionals it is anything under 1 dollar. No, matter what your dollar cut off is for penny stocks, the main reason people avoid them is because they are a lot riskier than establish companies. For this reason, there are people, that will never, look at them, others that will look invest and move on, and others who will look, invest, explore and make a million dollars. It’s all dependent on the individual and what their risk tolerance is. But, let’s take a look at the top three common misconceptions about penny stocks.

The 3 most common myths are:

1. Penny stocks will make you a millionaire

The misconception that anyone who invests into penny stocks will be a million over night is not particularly accurate. There have been stories of people who traded in the right company and did become a millionaire in a company. This does not happen terribly often. Just like any other investment when you are trading penny stocks you are going to want to research your investment. Look at the company’s financials. Check with analyst if available and due your diligence in knowing about the company. This will help you increase your returns and receive better trades in companies that you know.

2. Stressful, Time Consuming, Little Return

I think that any stock you trade in the market can be one of these or the other. It is how you manage your time whether or not you are going to be successful in trading, in any stocks. Only trade stocks for a maximum of 2-3 hours, never longer. This includes research, analytics, price movements; etc it is always tomorrow to try again. But, like anything if you keep at it too long it will only make you frustrated. As you learn new techniques, and begin to become familiar with how things work in the stock market you are researching, it will become easier to manage your time effectively. The initial learning curve is always the hardest.

3. Savings is better than investment

When you are saving the current average growth of that savings, is roughly 1.2 percent on the dollar. Even if you invest in regular stocks and not the riskier penny stocks your average growth rate would be much higher than 1.2 percent. So, isn’t it worth letting your money work for you over you working for your money?


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