Penny stocks refer to stocks trading at a low value in the stock market. Traders are usually attracted to them because of their sudden and high upward move at times. In most cases, there is no fundamental reason behind this huge movement of penny stocks. Trading at stock exchange is based on the principle that there must be buyers and sellers to make money.
However, this is a bit risky as falls in the penny stocks can be enormous. Therefore, it is important to be very careful when day trading penny stocks in order to avoid losses. If you want to invest in stocks, here are some strategies that you need to employ to double or even triple your investments within a year.
Tips on How To Trade Penny Stocks
Monitor Price Movement
To participate in online trading of stocks, you need to monitor the price movement of the shares for some time. Before you invest any money, it’s advisable to track them for at least one month. This is because such stocks usually don’t have a clear trend and they can enormously move up or down within a short time. So, if you are a beginner, follow this suggestion and you will certainly make considerable money from the penny stocks.
Select a Safer Sector
When trading in stocks, it is advisable to buy shares from safer and stable sectors that are not often affected by market fluctuations. Stocks from sectors that are always on the news can be a bit unstable. On the same note, investor sentiments for different sectors can change at different times of the year; hence you need to study the market carefully to know the stocks in demand.
Study Technical Charts
Another thing that can help you to choose stocks is the technical charts. Studying technical charts of stocks would enable you to arrive at an informed decision. The price patterns on the charts would not only allow you to make a decisive conclusion but would also help you to predict future penny stock prices.
Buy on Dips
The key to making money with stocks is to buy them at lower prices. Some investors usually buy stocks at the wrong time when they should be selling them. Eventually, they will end up making losses when the selling pressure from big market players reduces. Therefore, buying stocks at lower levels is beneficial to any stock trader.
Sell on any Rise
For anyone who wants to learn how to make money with stocks, selling shares on any rise is the ideal solution. If you notice any opportunity of booking profits, don’t wait. To know when there is an opportunity to make some profit, you have to monitor the stock market carefully. This will enable you to react faster.
Avoid Over Valued Stocks
It is advisable to buy fairly valued penny stocks in comparison to their peers. Valuation is very important when it comes to penny stocks as they react sharply to any news. Therefore, you need to compute their fair value using valuation ratios, like net profit ratio or price to earnings ratio.
Do not Invest Huge Capital
It is not a good idea to invest everything. Penny stocks are associated with a lot of risks and hence you need to invest only 8-10% of the total money you have allocated for share trading. Avoid buying penny stocks of smaller companies with the hope of doubling your money in a couple of days.
Have Correct Stop Losses
Stop loss refers to the price below which an investor exits from stock because it may touch rock bottom thereafter. Therefore, it is important to have a stock loss price at the right level to protect profits and lock them in time. The stop-loss order is placed with a stock broker and he executes it over the phone.
In conclusion, trading penny stocks may be achieved only with good stock research and systematic stop losses. You can also seek assistance from brokers and experienced traders, particularly when dealing with a huge stock market such as NYSE. If you follow the aforementioned tips, you will certainly reap the benefits of your investment. At the end of the day, your success will depend on your research and decisions.