Which Are The Best Penny Stocks To Buy Today?
Penny stock investing can be lucrative no doubt. But it is a very risky proposition especially if you dont know what you are doing. Its important to keep these two things in mind before you decide to jump headfirst into this style of investing.
Be Careful about the Penny Stocks Companies
Penny stocks are dirt-cheap compared to the blue-chip stocks for a reason, or rather, for many reasons. For one thing, these companies are startups that stand on shakier grounds than most established companies especially in these recessionary times. For another thing, these enterprises may not have sound business plans that justify IPO investment. As such, it pays to do your research before investing in the company's penny stocks. Never rely on hot tips and insider information either since these are deceitful ways to encourage investors to put money in a sinking boat.
However, you should not dismiss a penny stock company operating at a loss. You have to determine the reasons for those losses, the capacity of the management to turn the company around with an infusion of new capital and its standing in the business community, among other considerations. Again, this is where your due diligence comes is necessary.
Look for Consistent High Trading Volume among Many Traders
You must look for consistently high trading volume in the penny stocks you are thinking of investing in. More often than not, the average volume is misleading as the highs in trading volume for a day can pull up the lows in the succeeding days. Also, you have to assess the quantity of traders buying and selling on the stocks. If it is just one trader doing the high volume, then alarm bells must be ringing in your head by now. And even when there are many traders on the floor, you must figure out the flow of trades. Too little or too much can be a bad thing for your investment.
If you deem it unwise to continue investing in a company because of the lack of traders and trading volume, then unload your penny stocks. Sometimes its not prudent to simply be patient and wait for things to get better as they sometimes never do.
Formulate and Follow an Entry and Exit Strategy
Whenever talk about entry and exit strategies the saying 'Bulls make money, bears make money, but pigs get slaughtered.' comes to mind. In short, be aware of trend, go long or go short (i.e. buy or sell short) but keep an entry price point and an exit price point in mind. If you don't think about the two 'before' you trade, you are likely to let emotions get in the way once the trade is in action. Emotions and profits dont always mix very well. You can take our word for it or learn this expensive lesson on your own. Keep in mind - the penny stock market is highly volatile, so it pays to be very prudent with what profits you are content with and what you can afford to lose.
One of the more important components of your entry and exit plan must be that your penny stocks must comprise only 10 percent of your total investment portfolio. You cannot place your portfolio at greater risk than is necessary and avoidable by placing all your eggs in the penny stock basket.
