Penny stocks offer a fantastic potential to produce profits. The returns in penny stock trading can often exceed other investing methods. However, when the potential for profits increase, the risk of losses can also increase.
That being said, many penny stock investors are able to produce dependable, regular, and exceptional profits. The key is to be well-educated and by vigorously studying a Penny Stocks Guide. By reading this article, you’re taking an important step towards increasing your knowledge.
Quite simply, when it comes to trading penny stocks, knowledge is profit.
What Are Penny Stocks
A penny stock refers to any stock that trades for $5 dollars or less. Many penny stocks trade for less than $1, hence the name. Usually, penny stock companies are suffering through some tough times or facing higher-than-usual risks.
This means that price movements are often more volatile. A blue-chip stock might not rise or drop more than a few percent in a year. A penny stock can rise or fall by double digits within a single day.
With penny stocks, gains of 15 percent, 25 percent, or even a 100 percent are possible within a single trading day. Yet, penny stocks can drop by the same amounts within a single day as well. Of course, dropping prices present an opportunity to make profits off of short-selling.
Pay Attention to the Company’ Long-Term Vision
Did you know that Apple was once a penny stock? On December 19th, 1997, Apple was trading for only .46 cents per share. Now, Apple is trading for more than $150 per share.
Apple was suffering through some tough times. If you had invested $1,000 dollars when Apple shares were selling for 50 cents, you would have acquired 2,000 shares. Those shares would now be worth more than $300,000.
Apple was a well-run company with a great leader in Steve Jobs. The company was clearly dedicated to innovation and would enjoy smashing success with its iPod, iPhone, and other devices. If you want to find a penny stock to hold onto for a while, pay close attention to the company’s vision and leadership.
Watch Market Movements Closely
Another way to make money off of penny stocks is through day trading and other short-term trading strategies. With these strategies, you aren’t looking to hold onto stocks for a long time. In fact, you might want to sell your stocks within hours or even minutes.
How can you make money this way? Price volatility helps. Fortunately, penny stocks come with plenty of volatility, making them great for day trading and similar methods.
These methods focus on inefficiencies within markets. When a temporary inefficiency crops up, you can produce profits by investing and then waiting for markets to correct.
To illustrate, maybe a company suffers a security breach and investors get cold feet. Stock prices plummet, but you realize that markets are overreacting. So, you invest, stock prices recover, and then you sell.
Use Tools and Analysis Services
There are a variety of tools, such as stock screeners, that you can use to find stocks. There are also a variety of tools that you can use to monitor specific conditions, such as price or volume changes. These tools can help you keep an eye on markets and sift through large amounts of data, finding the best penny stocks.
Penny stocks offer a fantastic opportunity for investors looking to lock up big profits. You’ve just started your journey, so keep at it and remember that knowledge will help you produce profits.