penny stock advice for novice and experienced traders

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penny stock advice for novice and experienced traders

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A quick search on the internet for advice on penny stock advice will quickly show you that there are several would be gurus ready to give advice on what stocks to pick and warning you not to miss the next big thing.

This article isn't one of those! This is simply a set of suggestions, yours to take and use as you see fit. We're not professional financial advisors or have some type of fancy scroll up on our walls saying that we know what we're talking about. We're simply a bunch of penny stock investors who have attended the school of hard knocks that only trading penny stocks can give you.

If you want to make money in small caps, there are 2 ways of doing it: buy the hype and be quick or buy the company and go long.

First, lets have a look at what types of companies trade on the OTC BB or Pink Sheets.

There are pros and cons to each:

Buy The Hype:

Most penny stock advice comes in the form of the famous penny stock tip - you know, the one from your neighbour, your friend, perhaps someone who only started chatting with you once they knew you liked penny stocks. Needless to say, its usually the worst type of advice to get.

When a company is getting a lot of press, it increases interest. With increased interest comes an increase in buyers which inevitably pushes up the price. If you get in at the right time, and look for the right signals, you can easily make money. There are plenty of penny stock traders who buy, and either exit at a specific price, or sell half when a particular target has been achieved.  These traders also have a specific stop loss in place, and do not veer from it.

The downside of course is that if you are unable to constantly watch the price ticker, you could miss the signs that sellers are taking over a particular stock.  While protected by a stop loss, with the wild swings that penny stocks enjoy, you could end up giving up profits. Remember, the difference between selling at $0.12 and $0.10 is 20%. A 20% return in most people's books is a good deal.

Buy the Company

Many small cap companies decide to go public so that they can expand on their successful business plan. While a few shady companies do get in there, for the most part, most small cap stocks are trying to leverage the shareholder's investment into a larger share of the market and execute their business plan. There will be ups and downs in the share price, but a company that sets out goals, and then shows shareholders that they can execute on them, typically will do quite well in the markets.

The downside is that any delays in the execution of that business plan are normally dealt with quite harshly and as such, investors can stand to lose a lot more of their investment.

The upside of course, is that a successful company can stand to make shareholders exceptionally wealthy.

Some of the most successful profiles we have seen in our 7 years online have all gradually built themselves up. Sure, we have seen several companies move 100%+ after we profile them, but we have also seen several move down just as quickly as insiders sell to a fresh group of investors, and inadvertently flood the market with shares, driving the price down. 

So what type of penny stock advice can we give to you?

  • While small caps can make you a lot of money, they should not make up the majority of your portfolio. Diversify your portfolio, ensuring that small caps only take up no more than 20-25% of your portfolio, depending on your risk tolerance. A financial advisor can help with that.

  • Consider staggering your positions. If you are going to take a longer term approach to investing, consider investing $1000 at every milestone. For example, if a stock is at $0.50, consider buying at every $0.10 increase in share price. This will help you in two ways: 1. It will protect your trading capital. If the share price goes south, you will be stopped out at a very small loss. 2. Your average price will always be higher than your original buy in price, locking in a profit with each trade. Most successful investors are happy with a small gain than trying to hit one out of the park every time.

  • If you are going for the short term pop, use support and resistance lines to judge your stop loss and profit taking points.  Place your orders just below those two points. If you get stopped out, or if the price moves higher, don't dwell on it. Learn from it.

  • Look for the company to state exactly what goals they have, and based on previous track records, have they been able to achieve them. If yes, you have a winner. The market rewards company's who know how to make money. The industry doesn't matter: its the bottom line that matters.

  • If you decide to play the short term pop, don't sway from that plan. The easiest way to lose money is to let a short term play morph into a long term play because its not working the way you hoped it would.

Some of these suggestions are common sense, but in the thrill of the moment, traders can lose track of that. Post your trading rules to your computer. Its important to stick with the plan that works. Do you have time to watch the ticker all day? If not, go with a long term strategy.

There is a lot of money to be made trading small caps - if you get the right penny stock advice. You just need to know where to look for the opportunities, plan the trade, and then trade the plan. 


 

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