How To Make Money Trading Penny Stocks
The Dynamic Wealth Report
August 8, 2008
Five Penny Stock Trading Secrets
Penny stocks. Depending on your past experience the comment alone either
makes you smile. . . .or run the other way in fear. I’ve made some good
money from penny stocks. I’ve also lost some good money investing in
penny stocks.
And I can honestly say this.
I know people who’ve made millions from one penny stock investment. It’s
absolutely amazing. But, like all things having to do with trading and
the stock market, it has its risks. If you understand and work to
minimize those risks you might too be able to brag about making serious
money off of penny stocks.
With penny stocks there are numerous risks. As a matter of fact, the SEC
has published a notice called “Important Information on Penny Stocks.” They require your broker to get you to sign a statement that says that
you’ve received it.
I’m not going to bore you with all of those details.
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Instead, here are five tips about trading penny stocks that
should help you become a better trader.
Tip One: Make sure investing in penny stocks is right for you.
Everyone’s financial situation is different. You need to consider your
investment in penny stocks very carefully. Some investments are riskier
than others. Penny stocks are at the high end of the risk spectrum. That
being said, making the right investments can generate high rewards.
Many penny stock investors dedicate a small portion of their portfolio
to these types of investments. Like they say, “all things in
moderation.” So don’t go throwing your life savings into a penny stock.
“OK?”
Tip Two: Understand the volatility of penny stocks.
Volatility for stocks is simple. It’s a measure of how much they go up
and down. Stocks never go up in a straight line. Every day is a new day,
and the opportunity for a gain is as good as a loss. Remember,
volatility is a good thing . . . when it moves the right direction.
Having a steel stomach is important for investors focusing on penny
stocks. You might see your investment rally 100% one day then loose 50%
the next. Volatility is huge in these markets . . . so understand it and
embrace it. If you like a little risk and excitement in your life, penny
stocks might be perfect for you.
Tip Three: Do your research BEFORE buying a penny stock.
I can’t tell you the number of times I’ve heard investors bemoan their
penny stock investment. Usually it’s from investors not doing their
research. I can tell you how many times I’ve heard . . . “I’d never have
bought the stock if I knew that!” Do your research. Read everything you
can about the company, their product, and the management team.
And “NO.” Just because your brother-in-law’s buying the stock does not
mean your research is done. Jump through the hoops. Do the research. Ask
questions. You’ll be glad you did.
Tip Four: Be willing to hold on for a while.
It’s not every day you’ll find a stock to invest in. As a matter of
fact, you’ll no doubt discard a hundred or more for every good
investment you find. Once you find a good one hold tight. This is one of
the most important tips in the group . . . be willing to sit and wait.
Rome wasn’t built in a day, and your stock probably won’t start showing
profits the first day either. I know investors who have waited two,
three, and even four years for a penny stock to show a really big
profit. Have conviction in your research, and be willing to wait. When
the stock starts to move you’ll no doubt be handsomely rewarded.
Tip Five: Have a plan for your investment.
The greatest investors of our time always have a plan. They decide in
advance why they are buying a stock. They’ve even identified a profit
objective. They’ve determined what to do when the trade moves in their
favor. And more importantly they’ve already decided what to do if the
trade moves against them. Having a predetermined sell strategy is very
important.
Follow all of these tips before you enter a penny stock trade. Believe
me, it makes investing much easier. I’m sure it will help you become a
better penny stock trader.
• An analyst at
RBC increased his price target for Clean
Harbors (CLHB) to $86 from $78 and reiterated his Top Pick
rating and Above Average Risk qualifier.
• Bank of America (BAC) was downgraded by UBS this week. The company received a number of subpoenas on their involvement in the
auction rate securities markets.
• Canaccord Adams initiated coverage on a number of companies in the
solar industry including: Canadian Solar (CSIQ),
JA Solar (JASO), and Solarfun Power (SOLF).
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