Penny stocks can be a great way to make a little extra money, but you have to know what you are doing or you could lose it all before you ever really get the chance to make a profit. Following these steps will help you get started as a penny stock investor.
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Gain the Right Knowledge
Read, learn, then read and learn some more. You should have some idea of how the stock market works, how to read an annual report, balance sheets, cash flow statements, income statements, and stock tables. Educate yourself in the world of personal finance, investment theories, world finance, taxation, and economics. The more you know, the more prepared you’ll be for whatever the market throws at you, the better you can protect yourself from downturns, scams, and other market catastrophes. Subscribe to at least one reputable penny stock newsletter. They can help you understand the market as it applies specifically to penny stock trading.
Gain the Right Mindset
The first thing you need to do is start thinking of yourself as an investor. You are engaged in the business of buying and selling stocks. This isn’t a hobby or something you “dabble in,” but a serious undertaking that should be approached like any other business venture. Think right and you’ll have the motivation to make smart, well-informed decisions when trading penny stocks.
Know Your Software
You should invest in at least two types of software--personal finance and investment tracking—before you start. They can make your entire penny stock trading experience, or any trading experience, easier and more manageable.
Know the Risks
Penny stocks are considered high-risk investments because of their high chance of loss of capital. They are often traded by small or developing companies with inexperience in the stock market. They can also potentially be manipulated by the unscrupulous scammers. Penny stocks are not traded on the major markets, but on the side or OTC markets. However, knowing and understanding these risks can prevent losses and ensure your profitability.
Use Your Head
Don’t invest above your means. Don’t invest more than you can stand to lose. Learn the traits of a “red flag” stock to avoid scams and losing propositions. Learn which stocks to reject based on their risk factors. Know when to call it a day and sell your shares. Most penny stocks should be should at 50% profit. Don’t get greedy. Chances are you’ll be sorry if you do.
Find a Service
Penny stock trade advisory services can be a great way to learn the ropes of the market, providing many of the items we’ve discussed already—news, tracking, portfolio management, and even educational programs. You subscribe and they recommend stocks to buy. You buy the stocks, they take a nominal part of the profits as their fee. This is a great way to begin for someone completely new to the game.