Avoid Penny Stocks Some Say
Almost all stock market advisers say to avoid penny stocks. The widespread opinion is that they are high-risk speculations of poor quality. It is not difficult for unscrupulous operators who use questionable promotion tactics to manipulate prices, and they are generally only worth the pennies that the market pegs them at. Also, for anyone holding such low priced stocks, they are usually thinly traded --meaning it can be hard to find someone to sell them to when they want to exit the position.
Not everyone agrees
But for all that €good€ advice, millions of penny-priced shares trade every day even though the trading risks are high and acknowledged as such by the smart traders, traders who also like to take profits quickly, in a short a period of time as possible and penny stocks, being volatile, often provide such quick profit opportunities.
And then there are the punters, to use a somewhat derogatory term, meaning the less sophisticated speculators trading more on hope than on skill and experience in the trading arena, and for those the odds are really stacked against them, luck can only take you so far.
If you are going to play you need follow risk management guidelines
However, having said that, if you can tolerate the risks levels attached to trading low priced stocks, as mentioned above, with the right preparation and due diligence it is possible to be a winner, especially if you can recognize typical trading patterns of price movement that have a history of often being the forerunners of profitable moves. The patterns referred to can be seen on stock charts that are available free from several sources on the internet as well as from the stock brokerages.
What you need to know to be a winner
There's really not much difference in what you need to know whether trading in low priced stocks or trading in higher priced stocks, apart from avoiding as much as possible the low priced unlisted stocks and the much-hyped issues that may be suspect of being artificially promoted.
It's usually referred to as due diligence, it really means finding out as much as possible about the stock under consideration and while there is less public information available on unlisted stocks, plenty can still be found by checking the internet, entering the stock symbol, firstly in the browser search box and reading the data presented there and then going to one of the financial sites (such as Finance Yahoo) and entering the symbol there. Doing this will more than likely provide you with adequate data and beneath the basic statistical data, trading volumes, prices, and such, you will find links to several written articles about the stock in question.
Importance of interpreting stock charts
Next, check out the stock chart at a free charting site where you can see the trading patterns for the past many months. Admittedly, you have to know what to look but with some study the basic essentials can soon be picked up.
The main positive patterns to look for include any of the following:
How to practice trading
The stock market is an expensive arena in which to learn to trade and is very unforgiving of mistakes, so to gain some practice and experience in executing trades and interpreting stock charts without having to risk real money, most stockbrokers have simulated trading facilities.
Simulated trading, also called paper trading or virtual trading, is way of pretend trading in which all the actions of real trading are performed. The pretend trading stake is supplied in a suitable generous amount, say, $50,000 and you can buy and sell to your hearts content, knowing no real money is involved.
The buys and sells are tracked and recorded and statements are available just as in real trading and in this way you can be trading many stocks simultaneously, putting into practice the methods and strategies as you learn them and learning how to react to the results that follow those actions.
In conclusion
With paper-trading, you should be able to learn to recognize patterns in price movement in relation to other factors and also when to buy and when to sell a stock. Finding what to buy is, of course, a different matter and we will have to save that topic for a future discussion.
Almost all stock market advisers say to avoid penny stocks. The widespread opinion is that they are high-risk speculations of poor quality. It is not difficult for unscrupulous operators who use questionable promotion tactics to manipulate prices, and they are generally only worth the pennies that the market pegs them at. Also, for anyone holding such low priced stocks, they are usually thinly traded --meaning it can be hard to find someone to sell them to when they want to exit the position.
Not everyone agrees
But for all that €good€ advice, millions of penny-priced shares trade every day even though the trading risks are high and acknowledged as such by the smart traders, traders who also like to take profits quickly, in a short a period of time as possible and penny stocks, being volatile, often provide such quick profit opportunities.
And then there are the punters, to use a somewhat derogatory term, meaning the less sophisticated speculators trading more on hope than on skill and experience in the trading arena, and for those the odds are really stacked against them, luck can only take you so far.
If you are going to play you need follow risk management guidelines
However, having said that, if you can tolerate the risks levels attached to trading low priced stocks, as mentioned above, with the right preparation and due diligence it is possible to be a winner, especially if you can recognize typical trading patterns of price movement that have a history of often being the forerunners of profitable moves. The patterns referred to can be seen on stock charts that are available free from several sources on the internet as well as from the stock brokerages.
What you need to know to be a winner
There's really not much difference in what you need to know whether trading in low priced stocks or trading in higher priced stocks, apart from avoiding as much as possible the low priced unlisted stocks and the much-hyped issues that may be suspect of being artificially promoted.
It's usually referred to as due diligence, it really means finding out as much as possible about the stock under consideration and while there is less public information available on unlisted stocks, plenty can still be found by checking the internet, entering the stock symbol, firstly in the browser search box and reading the data presented there and then going to one of the financial sites (such as Finance Yahoo) and entering the symbol there. Doing this will more than likely provide you with adequate data and beneath the basic statistical data, trading volumes, prices, and such, you will find links to several written articles about the stock in question.
Importance of interpreting stock charts
Next, check out the stock chart at a free charting site where you can see the trading patterns for the past many months. Admittedly, you have to know what to look but with some study the basic essentials can soon be picked up.
The main positive patterns to look for include any of the following:
- the stock is in an upward trend
- it has reached a series of higher highs
- it has broken through a previous level of resistance, a possible entry level
- patterns that signal that it is time to exit a position
- volume is increasing significantly
- minimum average volume over prior 3-months exceeds at least 100,000 shares daily, preferably higher (this data is also given on Yahoo and other financial sites)
How to practice trading
The stock market is an expensive arena in which to learn to trade and is very unforgiving of mistakes, so to gain some practice and experience in executing trades and interpreting stock charts without having to risk real money, most stockbrokers have simulated trading facilities.
Simulated trading, also called paper trading or virtual trading, is way of pretend trading in which all the actions of real trading are performed. The pretend trading stake is supplied in a suitable generous amount, say, $50,000 and you can buy and sell to your hearts content, knowing no real money is involved.
The buys and sells are tracked and recorded and statements are available just as in real trading and in this way you can be trading many stocks simultaneously, putting into practice the methods and strategies as you learn them and learning how to react to the results that follow those actions.
In conclusion
With paper-trading, you should be able to learn to recognize patterns in price movement in relation to other factors and also when to buy and when to sell a stock. Finding what to buy is, of course, a different matter and we will have to save that topic for a future discussion.
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