4.7 (Rating) – There are a ton of great companies out there that trade on the penny stock markets. And when it comes to investing in one of these, there is a very good chance that you could end up with a huge profit. With these companies, there is even opportunity to invest long (although holding long is not always recommended in the penny stock world). There have been quite a few stories of some of the smaller (Penny Stock) companies crossing over into the larger markets.
However, you should be aware that penny stocks in general have a super negative reputation to go along with them within the larger investment world. Yes, that negative reputation is somewhat well deserved. But, even with all of this negative opinion surrounding penny stocks; if you are able to hone in on a few different strategies that work well, you can sidestep most of the pitfalls of penny stocks. This is why were are here writing this Penny Stocks for Dummies PDF Download & eBook Review. If you play it smart, you can win with Penny Stocks.
How to Protect Yourself from Common Penny Stock Pitfalls
When it comes to penny stocks, the investors that are best prepared to avoid the pitfalls and take on the extra risks that penny stock trading carries, are the ones that actually spend the time in educating themselves on what those pitfalls actually are. Below, you will find some tips on “how to avoid” some of these pitfalls.
Try to not trade on any of the low quality markets like the OTC or Pink Sheet markets. Instead, it would be best advised that you stick with the penny stocks that trade on the bigger and more regulated exchanges like; OTCBB, OTCQB & the Nasdaq.
When it comes to Penny Stocks, never ever just rely on a “tip to buy” a stock from either a friend or anyone else for that matter. If you want to continue making profits with stock trading and investing, always make sure to do your own research on a particular Penny Stock stock before you decide to buy it (or sell).
Stock picks and stock alerts. I am sure that by this point you might have seen some form of a stock alert or communication about “the perfect stock pick” come your way one time or another. Well, when it comes to these alerts and stock picks, we recommend staying away from them completely. Most of these alerts, whether coming in through an email, a newsletter, or text; have hidden motives behind them.
Either the company that is being promoted via these alerts paid for this promotion and wants to dump shares on unsuspecting investors, or the actual owners of the alerts or newsletters have bought shares and are trying to dump them in the market for a profit. Quite often, the information that is sent in these communications is dishonest, or just fluff news. So once again, we recommend staying away from such Penny Stock alerts.
Buy a fundamentally and technically strong penny stock. As mentioned previously, most of the Penny Stocks out there are utter garbage. Some of these companies do not report their finances regularly, they do not keep their records straight, their licensing is not up to date, their stock has very little volume or buying/selling, etc. Make sure to always do your own DD (Due Diligence). Search for pertinent information for a particular company online, check out the company’s profile on otcmarket.com website, call the company, ask questions and just generally research the stock before you buy. Doing your own DD before buying a stock will help you minimize the risk of losing your money.
Penny Stocks and story telling. Yeah, this is a really common one. There are penny stock companies out there that will spew out a grand story to help them sell you stocks. For example, there might be a company or two that just released some news that they have this great new “business concept”; like, a cure for the common cold for example, or a new type of engine that uses gravity as its fuel. These so called “story Penny Stocks” are typically horrible investments for anyone out there with some sense.
Such companies usually have a very poor record with finances, SEC fillings and updates for their share holders. What they do have going for them though, is a good marketing team. These marketing teams do a phenomenal job of suckering in novice investors with grand stories and fabricated ideas (fluff news) to help the company shares sky rocket for a split moment (just enough time to take the hard earned cash from inexperienced traders). Stay away from story based stocks.
Get in touch with the company’s investment department. As we had mentioned before, always do your own research. Have some questions ready to go before you call the company. Quite often, the people on the other line will be very happy to talk to you and to give you information that would (in their eyes) help you buy their stock. But, make sure that you ask the right questions. Legally, they are not allowed to lie when it comes to providing information on their stocks; but sometimes I have seen some of these characters stretch the truth a bit to make their company’s situation sound better than it really is.
Here are some things to look for when searching out Great Penny Stocks to buy
These characteristics have been found on some of the best Penny Stocks out there. They don’t make the investment 100% risk free, but can help you in hopefully making the right decision when buying that potential northbound-set winner:
When the company has continued growing its market share in a market that also continues growing.
When compared to the other Penny Stocks in the same sector, a particular company’s shares must illustrate convincing value when based on the stocks financial price ratios. Some of these financial-worth metrics include; price-to-earnings valuation, price-to-sales and chart placement (look for good support levels).
When the company starts approaching success through the combination of both, a rising revenue stream as well as the reduction of expenses.
Another good thing to look into, is that the company is built of a management team with past success. It is very important to have capable people at the helm of a company.
The company should have acquired and created a combination of good patents, branding and trademarks as well as protected itself by applying copyrights. Having such things in place allows the company to protect itself when joining the bigger companies in the same sector of operation.
A very important characteristic of a great company product is the high customer acceptance of that product. This provides the company with some breathing room when it comes to the prevention of attrition.
As we have mentioned throughout this page, strong marketing is a very important piece of strong company management. It is not only important in terms of profitability, but it also helps strengthen the company’s brand.
Earlier, we stated that strong charts and technical analysis is a very important piece to researching profitable Penny Stocks. This is also true when it comes to the valuation of a company. The goal is to look for higher near-term price indicators that are based on the company’s money flow pattern, the price of the share, the share structure as well as the historical data that can be found in the chart.
Paper Trading – It Turns Novice Traders into PRO Investors
There is a form of trading out there called “Paper Trading”. What paper trading allows you to do is to hone in your trading strategies by buying and selling real Penny Stocks companies, in actual real market time, and all without investing any of your hard earned money. Yes, this process utilizes fake money, I call it monopoly cash. You buy and sell real stocks with fake money. So in essence, they are fake trades; but you can actually track all of your progress and see how you are doing with your strategies.
Before jumping head first into trading Penny Stocks, you should spend much of your time learning how to paper trade. By doing so, you will become comfortable in the space of trading stocks. And the most important thing here, while you are improving your strategies you are not risking even a single penny of your own money. Once you have zeroed in on a strategy that you like, perfect this strategy with paper trading. Then perfect it some more. Watch how this strategy of yours does in the long term. Try it at least 10 different times once it is working. Then, once you are ready, go ahead and pull the trigger; start investing real money and watch your stock investment gains grow.
Here are some tips on how you can get started with paper trading:
I would start a paper trading account with $25,000. Most of the big brokers like TDAmeritrade have the paper (virtual) trading program.
Research real Penny Stocks and select the one that you want to buy (based on information that you have learned as well as by looking through our guides on Penny Stock trading).
Track your paper traders through your broker. Watch out for when you bought the stock, when you are planning to sell it, etc. I would recommend even setting paper-trading stock alerts for yourself, this way you can get alerted when your stock is running northbound.
Make sure to try your strategy on multiple Penny Stocks. Having multiple stocks in your portfolio allows you to gain more knowledge and experience with this paper-trading exercise.
Watch the Penny Stock transactions closely and look out for the ones that made you a profit, and keep track of the ones that lost you money. By doing so, you can see what you are doing right with you strategy, and what needs some tweaking.
Alright, well; we have come to the end of this Penny Stocks for Dummies PDF Download & eBook Review and the “How to Protect Yourself from Common Penny Stock Pitfalls” section. I really hope that you like the information that we presented and that you will leave us a comment below, or send us a note if you have any questions or concerns on our Contact Page.