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Buying Penny Stocks: How To Trade Penny Stock Wisely

Feb 18, 2008
Investing in penny stocks is often seen as a cheaper alternative to buying regularly traded stock. While it's true that it's easier to enter this market, this doesn't mean that the risk is lower, to the contrary, penny stocks are considered quite volatile.

A penny stock is also known as a microcap (or nano) stock which normally trades for under $5 per share. These smaller stocks are often offered by upstart and struggling companies as a way to obtain quick cash flow for their business. This is not Coca Cola or Microsoft you're investing in. These companies have not yet proved they are stable enough to stick around for the long haul.

Because of their low cost, you may be tempted to invest in several microcap stocks that look like a good bet. Keep in mind that you cannot just randomly pick a winning stock by your gut feeling. Just like with larger stocks, penny stock investing requires lots of research on the investor side, before putting down any money.

Online, there are several companies that provide stock analysis and lists of their current picks that are formulated according current market trends. It is almost impossible for the average person who has a full-time job to do proper stock analysis by themselves. The speculative nature of small cap stocks is somewhat like riding a roller coaster. Companies you invest in will have their ups and downs.

While you can try winging it yourself, you'll have better success if you use expert analysis that shows you what are the most promising picks, and whether or not you should keep the stock you already own or sell. Knowing when to buy and when to sell are the key ingredients of successful stock trading. This is especially true when it comes to smaller stocks.

Because these stocks are so much cheaper to buy, you could typically buy 1,000 shares of stock at fifty cents per share for a cool $500. Indeed, this is a lot of shares and if your pick is a good one, you'll make a pretty profit. However, if it's a bad one, you'll lose all of your money. Therefore, choosing the right stock analysis system is really important.

No matter which stock system you choose, you should still plan on losing money, because no system is 100% accurate all of the time. There are just too many variables that can happen to a company that will be completely unpredictable. Being a successful investor, means you want to have more winners than losers.

Every successful investor also knows not to put all of their money into one stock. You will need to spread out your risk. This means investing minimal amounts of money in several stocks and watching them carefully. A wise investor will narrow their picks down to companies that offer the least risk. Finding these companies will take time and patience.

If you are new to penny stock trading, you will find it extremely beneficial to do paper trading before jumping into the market with real money. You can learn how to use a trading system by making fake trades based on real data, and then keeping score of how well you do. Paper trading is a great way to know whether a particular system is right for you without risking any money.

Once you know what to look for in a small cap company, it's very possible to earn a nice living investing in the future of small businesses. Make sure that you have reliable resources and training tools by your side so that you have the best possible chance at making substantial profits.
About the Author
Unbelievable! A robot that trades penny stocks better than many humans. Find out how you can use Marl the stock trading robot to earn a steady stream of profits. http://pennystocktradingmadeeasy.blogspot.com
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