How to Pick and Trade Penny Stocks

How to Pick and Trade Penny Stocks

Wednesday, July 3rd, 2013 - Penny stocks are sometimes loosely categorized as companies with share prices of below $5 and with market caps of under $200 million. These companies are sometimes referred to as “the slot machines of the equities market” due to the risks involved. There is a good place for penny stocks in your portfolio, however, you must follow these golden rules:

11)   Investing within your means. Penny stocks can be very risky just like larger stocks if not traded wisely. Set aside at least two months of savings in case the investment goes wrong.

22)   Understand why penny stocks are considered a very dangerous investment if you do not do your research and due diligence. Penny stocks are among some of the most volatile and most manipulated forms of investments in the stock market. These companies usually have a very short track record of solid financial performance, if any. In addition to that, scammers may use tricks against you.

33)   Only invest a small amount of money to begin with until you understand the in’s and out’s of penny stock investing.

44)   Educate yourself more about the specific aspects of penny stocks that make them both a lucrative and dangerous addition to your portfolio. Understand the mechanics behind my cash flow, market capitalization, and share structure. You also need to understand the purpose of a public company and the commonality of scams, dilution, and the loss of investment value associated with penny stock investments.

55)   Understand which stocks to turn down right away

stocks that aren’t traded on one of the major U.S. exchanges (aka bulletin board or over-the-counter (OTC) stocks)

companies that have less than $10M in annual revenue

companies in industries that you do not like or do not understand well

66)   Seek companies that have consistently generated cash and are growing their free cash over time. Steer clear of companies with heavy debt load.

77)   Purchase companies at a very low multiple on their money flow (ideally under 6x)

88)   Limit any small stock to no more than 15% of your portfolio (for the highest ROI)

99)   Trading can be a hobby, or it can be a business. You need to decide how much time and money you are comfortable with. If you are only looking to make enough money to purchase that new boat, or new home, make sure you stay with-in your means. Do your research, make your money and save your money.

110)                   Do a lot of reading. Reading a crash course on personal finance, corporate finance, taxation, economics and investment theories will help you a great deal. But, finding areas of the world or business in which you could become relatively advanced can help in the process of choosing good trades.

111)                   Find a good penny stock service to subscribe to. Joining a penny stock trade advisoryservice can now cover many of the suggestions above. These services aim to pick stocks, offer trading and portfolio management software and a wealth of educational services too. If things go well for you, invest your money into subscribing to a newsletter like, Penny Stock Hot Newsletter. Penny Stock Hot offers new clients a 3-month free membership. They are honest and allow the client to make money off of their tips before asking for money.

112)                  Know when to exit. Setting a time to liquidate your penny stocks is important because it can change the navigation of your investments. Capping off at 50% profits is a very good margin. Getting greedy and expecting future profits can make wipe out situations.