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Can You Get Rich Trading Penny Stocks Online?

We’ve all heard about the trader who gloated about his 100 percent or 1000% return on a stock or about the bloke who made it rich by investing in little caps, unexplored stocks that made it massive. In theory, it seems to be too easy. Invest in two penny stocks, then sell them when they move up. Sadly, it is too simple. Too simple to lose cash unless you know what to have a look for. If you’re still asking “how can I buy penny stocks online“, then lets have a look at how you can lower your risk.

Stocks that no longer trade over $1 on the NDX
These include companies that fell from grace ( Enron ). While it is possible that they may see better times in the future, the chances are stacked against them. Its usually best to avoid trading these stocks. If you’re feeling that the enticement is too much, wait until the stock starts to rebound.

New Start Ups
Each year there are hundreds if not thousands of firms who chose to go public. Whether they need the cash to expand their business, or are looking to cash out their equity, its a natural progression for a company with acompelling story, and a great track record to go public. While plenty of these corporations will file for an IPO, many others will start off trading on the OTC BB as a penny stock

Second, lets look at some tips to help the penny stock trader avoid making dear mistakes.

Due Diligence
Stocks listed on the Pink Sheets do not need to file annual or quarterly statements. This makes beginning your due diligence difficult. Often , the info is dodgy at best, and usually its biased. You need to expect a shareholder to claim good things about the company. If the company didn’t have potential, they wouldn’t be holding it. Or, they may be hoping to unload their shares and hope to chat you into buying.

Stocks mentioned on the OTC BB file yearly and quarterly statements. This provides some measure of money success. You’ll find most penny stocks lose cash, whether thru managerial incompetence, or research and development. The secret is to identify the firms whose managers have a record of consistently making money, or at the extremely least, delivering on their business plan, and decreasing expenses.

Penny Stock Newsletters
Being a writer for a penny stock newsletter (http://www.1source4stocks.com ) puts me in a biased position when speaking to penny stock newsletters. Hereis what I can tell you : be careful! Check the disclaimer for the amount the newsletter is being paid to carry the profile. Are they being paid in notes or in shares? You’ll likely find a correlation between the quantity of shares they are being paid, and the rating on the hype meter. Does that imply that you have to avoid any stock where the company is paying financier Relations pros in shares? No. Just remember that they are selling a story, and if they sell the story to other investors, theyare going to gain. This is not difficult if you get in early, but could be a problem if you are not in a position to jump in right away.

Take a look at the track record of the newsletter. Have they profiled winners? Do they state the facts, or state the hype? Do they also offer unpaid stock profiles? If they do, youwill probably find that they do their own research in all companies, and are looking to make sure that they aren’t passing a weak stock your way solely to pay the bills.

If a company is paying an IR professional cash to profile a stock to its subscribers, should you avoid it? Naturally not. Think of the payment as advertising. They’re promoting the company, and attempting to get exposure. Like any company, the only way to get exposure is thru some method of advertising. So don’t dismiss a paid profile as hype. Keep it in the back of your intelligence while you are reading the profile, but concentrate on the profile. You can find a diamond in the rough that nobody has found.

Volume
If you want to earn cash, you have to be able to buy and sell enough shares to lock in your profit, or protect your capital. If ABC company’s daily volume is only five hundred shares a day, it could take you a few days to accumulate a position worth taking. If there is bad news, whois going to buy your shares? If the volume is low, stay away. It’s not worthit. If you feel that strongly about owning the company, consider contacting the company directly and working out a deal.

Buy Results, Not the Story
If you buy the hype, percentages are, youwill finish up being the last one to own the shares, while everybody else has sold off their position. Look at a company, take a look at what their business plan was, and confirm if they have followed thru on that plan. Were they successful? Did they bring a product to market on time? Did the company follow thru on its purchase technique in the style they set out? The hype might get you aquick pop , however , unless you are watching your trading screen every second of the trading day, you will miss out.

Size matters
There are thousands upon thousands of penny stocks. The dimensions of your position shouldn’t be anymore than $2000 – $3000. While this may not seem like much, keep in mind that it isn’t unusual for a $0.10 company to fall to $0.05. That is a 50% loss. If your position is $10 000, a 50% haircut leaves you with only $5000. Keep your losses as small as possible. If the Firm has done well, and you are up, either take your profits off the table, or add to your position, and be certain to reset your stop loss so as to protect your previous profits. Capital preservation is the secret to successful trading.

Have a plan before you buy. What are your reasons for buying. What is your exit strategy? Where is your stop loss? At what point will you’re taking your profit? Write down these answers before you place that buy order.

Penny stock investing can be lucrative. Remember, you are taking larger risks than you would if you were buying stocks in a bank stock. That risk can be rewarded with returns that you cant get with a bank stock, or, it will be met with abig loss and a bad taste in your mouth for trading penny stocks.

Do your homework, donot accept the hype, and protect your capital.