- Use a brokerage:
Opening an account with a brokerage will offer you some guidelines and information needed to trade in penny stocks; they will help you make some vital decisions concerning the stock. Because penny stocks are not listed, there is minimal information available to aid you in making a choice.
- Consider the value and volume of the stock
Penny stock share prices are relatively low, so instead of looking at the share price, look at the trading value of the stock. Do your homework correctly, that a stock has a high or low share price doesn’t say much about the health of the stock. There are so many stocks traded over the counter that are very close to their graves. Check for signs of bankruptcy and or delisting, if it has been delisted, then it’s advisable you take your leave. Study the financial health of the company – the earnings and debts, the volume of shares traded as the volume of traded shares is a measure of demands of that particular stock. High volume (100,000 shares / day) means the demand is high and the liquidity high, while low volume means that the demand is low, this will help you evaluate the company correctly and make a wise choice.
- Start small
Penny stock is a highly volatile and speculative market; invest as much money as you are willing to lose, you can always increase your investment portfolio from your earnings. Don’t get greedy, even though you might be tempted to buy big in order to sell big, remember that there is a possibility of losing all your money.
- Understand the volatility the market
Before investing in penny stocks, it is recommended that you avail yourself with the risks associated with it. They are called penny stocks because they are not traded in the stock exchange and are therefore highly susceptible to manipulative trading; no information available for investors to study the stocks, there is no standard for them to be traded in OTCBB and Pink Sheets and they are highly volatile. Having these on your mind will shield you from any surprise you might encounter.
- Beware of market hype
There are so many market hypes in penny stock trading, so many testimonies and success stories, don’t believe all you hear. What you should understand is that, every business has its highs and lows and penny stock is not an exception. Most of the hypes you see are manipulated by fraudsters in the market to sell their services to you. Do your researches thoroughly; ask question why a particular stock went up so rapidly? Make sure your money is going where it will give the expected result. You must therefore have a technical knowledge to carry out a thorough analysis of the market. Don’t let an insider or another person do it for you to avoid fraud.
- Adopt a trading strategy
Are you a buy-and-hold investor or a buy-and-sell investor? You must have a strategy, a game plan of some sort. Someone who has no strategy is willing to try anything that comes to mind. Penny stock investment is not a ground for trial and error. You should have a direction and stick to it, choose what to do and what not to do.
