Penny Stock Trading Advice

Penny stock trading is fun and exciting! It can also be very very profitable. However, if you are not careful you can lose a lot of money. Remember there is always risk involved when investing. Investing is just like gambling, don’t ever risk more then you are willing to lose. First let me familiarize you a little bit with what penny stocks actually are. Penny stocks are generally any common stock that trades at less then $5.00 a share. These are also called small cap or micro cap stocks. Most penny stocks are from companies that are just starting out or have gone through a period of bad times. These bad times could be anything from bankruptcy to recalls of a product or even a failed drug. Even some of the biggest companies in the world can become penny stocks or have started out as penny stocks. If you look at AIG in the spring of 2009 its stock was valued below $1. Investing in penny stocks is affordable for everyone. That is probably the greatest thing about penny stock trading. With a $100 you can own thousands of shares of a company. Once you own those shares you now have a say in what that company does. If there is a shareholder meeting you will get to vote on company issues even vote for members of the board. It is an excellent way to start learning about the stock market while making money. I suggest opening up a Share Builder account for your trading if you have very little funds to work with. Although Share builder has a limited number of stocks they offer to be bought and sold (they offer about 8000) through their site they have no minimum investment amount. You can start your account with $50 and buy single shares of stock if you want. However, if you have $500 or more to open an account with, I would suggest starting a Scottrade account. With Scottrade you can buy virtually any stock that exists. Even stocks that are priced well below a penny. Those stocks below a penny are a great place to make some quick money. Scottrade is a little more confusing to use then Sharebuilder for the beginner but it has a lot better tools and Scottrade has branch offices with real people you can contact.

Once you have opened and funded a trading account you need to pick out some stocks. This is where the research begins. Buying penny stocks is always a big gamble but there are ways to hedge your bets a little bit. One of the biggest disadvantages to a penny stock is they are easily manipulated. Lots of websites out there use this to their advantage and so should you. Google penny stocks and you will find hundreds of websites out there just waiting to give you their picks. These websites usually get paid large sums of money ($50,000 + to push a stock for a week) to recommend a stock to their subscribers or huge amounts of stock (100,000 shares or more depending on the price of the stock it could even be millions of shares) in the particular company they are recommending. This in turn increases the demand for that particular stock and causes the price to increase. This artificial inflation happens for a few days to a few weeks depending on the stock then the sites stop pushing the stock and the value crashes back down. It usually falls below what it was originally before the sites started pushing it. Companies do this to inflate their stock price, and then sell off a bunch of stock to raise more capitol. The penny stock sites make money because they received the stock for free and sold it as the price was going up. The way to make money at this is by buying the stock on the way up and selling it before it starts coming down. Peny Stock Chaser is a good website to check out for stock picks.  A lot of these stocks will only be worth a few pennies or more and some might not even be worth that. I have traded stocks that were only worth $0.0004. Those are some of the best stocks to trade because you can purchase lots of shares for very little risk. Remember the more you buy the more you can potentially make but also the bigger the risk. Through my own trial an error I learned 1000 shares of a company is nothing, especially if the stock is worth less then a penny. But, when first starting out it seems like a lot. Make your moves carefully. When trading a penny stock sell it and move on to the next one while you’re ahead. I picked a stock, CTIC, and bought 1000 shares of it at $0.05 a share. It skyrocketed all the way to $2.20 a share. Instead of selling it then I held onto it hoping for bigger profits and being greedy. Lately it has tanked to $0.66 a share as of March 2, 2010. Although this is still a profit for me I should have sold it at its high. Don’t hesitate, I hesitated and missed a great profit. Most of your stocks will never skyrocket like that.

When playing the pennies just doubling your money is great. That is real easy to do when buying stocks at less then a penny. If you think about it, doubling your money on a stock worth $0.001 is a lot easier then doubling your money on a stock worth $0.1 and a whole lot easier then doubling your money on a stock worth $10. Besides the stocks that stock lists provide you as picks you should also do your own research. Sometimes you can find your own gems. Some penny stocks are only penny stocks because they have hit a rough patch like I said before. Imagine if you picked up AIG last year when it was under $1. No stock alert website ever sent out an alert on that stock. With all the stocks out there and all the websites out there giving stock picks and advice you still need to do your research. Check the stock out on yahoo finance. Read news about the company. Check out their website. Do your due diligence.Remember there is always risk involved in stock trading. With patients and proper research it can be very fun and profitable. If any of you reading this find some good stock pick let me know I am always looking for the next Microsoft!