The Internet has made online investing easier than ever before and people who would never have traded stocks 10 years ago are finding themselves attracted to making online investments via very easy to use interfaces. With just a few clicks of a button they can own their own piece of Coca Cola or Boeing. As people are becoming comfortable with investing online and ever more disenchanted with the returns they are seeing from their pension plans (or in some cases, massive losses), the attraction of unlimited earning potential from penny stocks becomes too hard to resist. But there are pitfalls and dangers that await the novice investor so we take a look at some of the secrets behind the successes of the wealthy penny stock traders.
Create A Budget And Stick To It
The first priority is to create a budget and then resolve to stick to it. All too often you will hear stories of people over-spending on a penny stock because they believed the price was about to go up when actually it did the opposite. For a penny stock to half in value doesnt take much and in just half a day you can see a significant part of your investment wiped out. Even taking a cautious approach and spending a low amount can lead to overspending, particularly if the stock starts to go up and you fear you might miss out unless you buy more shares so before you buy any penny stocks, pick a reasonable amount that you will put in to any one stock.
Have An Exit Strategy
In conjunction with having a budget and buying enough shares to not make you fear you are missing out, having an exit strategy is also highly advisable. Penny stocks react strongly to news or even rumors and its not unheard of for penny stocks to quadruple in value on a baseless rumor or even the expectation of some news. Learn when to exit or at least pull out your initial investment. Only a small percentage of penny stocks go on to be listed on the mainstream exchanges so if you pull out your money after making 300% return you would be very unlucky if the penny stock continued its astronomical rise. More likely is that the rumor or news never materializes and you are left with a frustrating wait again as the share value returns back to the original price.
Never Get Emotionally Attached To The Penny Stock You Are Buying
The next secret is to never get emotionally attached to the penny stocks you are buying. This is far easier said than done and even experienced traders fall victim to holding on to a stock in the belief that it will eventually come good. Unlike the large blue chip companies, penny stocks wont pay you a dividend every year so there is no financial benefit to holding on to a penny stock that isnt going anywhere. Your money is far better invested in a company that has a roadmap and a plan to go to market. Investing $1000 in to a penny stock which doesnt move in 12 months means you might as well have put the money in the bank given the 0% return youve got on it.
Do Never Invest In A Company That Hasnt Got An Income
Investing in a business which hasnt got an income is extremely risky. You need to have confidence and belief that what ever it is the company is researching will one day be a big hit. For this reason there is no point investing in a company that builds underwater turbines if you know nothing about them! On the other hand if you are in the aviation business and a company is close to launching a product that you know will revolutionize the industry then it may be worth taking the risk because you have a very good idea how well the product will do. Essentially, a good penny stock trader only buys in to companies that are in a sector they fully understand. If you know nothing about the Russian mining industry, how do you know that the company you are invested in is going to get its license? At the end of the day buying penny stocks on the basis that it has the potential to go up is gambling and not trading.