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4 Things to Watch Out for When You Start Penny Stock Trading

25 November 2018 No Comment

Penny stock trading is notoriously volatile. You need the right tools to master it. Look out for these four things before making your next trade.

According to the Security and Exchange Commission, a penny stock is a security that has a very low stock price, normally less than $5 per share. While the low share price may make it seem like a relatively low-risk investment, it’s not.

With that in mind, it’s important you learn the basics before getting started. Here are four things to watch out for when you start penny stock trading.

1. Choose the Right Stocks

Before jumping into the world of penny stocks, step back and look a the bigger picture. Ask yourself which stocks are right for you. If your answer is penny stocks, look into the various types available.

There are two types of penny stocks. These include Over The Counter (OTC) penny stocks and those listed on the NYSE or NASDAQ exchanges.

OTC penny stocks don’t have to adhere to strict financial regulations. This makes them more dangerous to trade. NYSE and NASDAQ penny stocks have complete financial documentation. They also keep their stock above $1 per share.

2. Do Your Own Research

Yes, you should listen to what the experts say. But, when investing money in the stock market, you also need to do your own research.

This is because penny stocks don’t see much daily volume on stock markets. It also doesn’t take a big sell or buy for the price to change. Additionally, the amount of attention they get on online chat forums can affect the price.

Just because a stock has a large one-day move doesn’t mean you should get stuck in your investment. Remember, what goes up must come down and this is especially true when it comes to penny stocks.

Companies share regular information on hot penny stocks for you to check out. So, the information is available, you just need to find it.

3. Don’t Fall for Promotions

Because of their nature, there are various promotions on OTC penny stocks. Whatever you do, don’t fall for them. They’ll make promises of a large return on investment just to disappoint you in the long run.

Base as many of your decisions on fact rather than believing the first promotion that comes your way.

Also, if an ad promises you that a stock will be the next Apple, Microsoft, or any other multi-million dollar enterprise, avoid them at all costs. The truth is, these companies don’t make their millions by starting in the penny stock market.  

4. Create an Exit Plan

Even with the best investment plan in the world, you won’t make any money if you don’t sell at the right time. If a penny stock doubles, don’t assume that it will continue to grow. In fact, sell it while you can still make a profit.

The penny stocks market is volatile. With this in mind, it’s essential you get into position to turn a profit whenever possible.

Learn More About Penny Stock Trading

Many beginners start their trading journey with penny stocks. The key to successful penny stock trading is to do your research and know when to sell your shares.

To get all the information you need to make a profit, you must keep a close eye on the companies you own stocks in. Continue reading 20sMoney to get more tips on monitoring the companies you invest in.


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