Can you Make Money With Penny Stocks?
All stock trades have a certain amount of monetary risks, especially for the inexperienced trader. Penny stocks are not for investors seeking a quick and easy way to make a ton of money in a short period of time. What they are is an opportunity to place some small trades and maybe see a far better than average gain. If you look at some of the results we have provided our subscribers, you will see the gains of 110% or more. So, yes you can make money with these types of trades, we will try and steer you in the right direction to do so. Just be sure that you have the time to monitor your investment. A penny stock trade is not something you buy and forget about for a few months.
What Are Penny Stocks?
In the United States, penny stocks are the shares of small public companies that trade at less than $5.00. Some firms will even designate a company as a penny stock if the trade price is less than $10.00 per share. Despite the notion that many of these equities do not make good investments, that is not always the case. For example you may not be aware that America Online was once selling for 50 cents and Yahoo was only a $2 stock not long ago.
Risks Involved With Penny Stocks
One of the many risks in investing in micro-cap stocks is that you could be exposed to misrepresentations of a company’s current fiscal health, and will not notice the truth until it’s too late. Companies at times will paint a rosier picture, in order to get you excited about their potential for growth.
It’s important to educate yourself thoroughly when it comes to penny stocks. Many people see them as a way to get in on the ground floor of some company that’s about to really take off — so invest in their stocks while they’re cheap, and perhaps make a fortune. This going to be the case in most instances. These types of stocks are also very volatile. It is not uncommon to see an issue go from .20 to 1.50 and back down to .20 during the course of a week.
Research the Right Stocks
You can use many of the same techniques and principals for researching penny stocks that you do with other “Big Board” issues. There is plenty of information out there with regards to the financial statements, historical pricing and industry position. Don’t be afraid to use it. Just because it is a smaller investment doesn’t mean you shouldn’t do your homework.
Here are some of the key points we focus on when analyzing a penny stock:
- Check the Financial Statements – Make sure that the Company is fully reporting and files it’s statements on time
- Chart the past 90 days of trading volume – Because micro cap stocks tend to move so quickly we look to focus on the most recent data available
- Put some time into researching the company’s product or service. We like to compare a stocks core business to other industry peers and see if that Company’s solution will have the potential to generate successful results
Penny Stock Trading Techniques
One thing that doesn’t always work with long term investments but works great with micro caps is swing trading. A swing trade is a pattern you can find in the history of a stock price, usually when the price goes up or down in rapid fashion. This can be used to your advantage. You may see that a stock drops in price for about 2 weeks, then jumps up just to slowly descend back for another 3 weeks. With this information you can pick the perfect time to buy and sell. This method alone will do a great deal towards capitalizing on an investment in lower priced stocks.
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