How to Make Money Buying Penny Stocks – Tips and Secrets to Penny Stocks Investing

Posted on 28 May 2011

How to Make Money Online Investing in Penny Stocks – Expert Tips and Secrets to Penny Stocks Investing Success: Penny stocks are usually sold by small public companies, and they are loosely defined as shares of stock that are valued at $1 or less. The idea behind making money with these stocks stems from the ability to acquire a large amount of shares for little cost. If you are able to pick a penny stock that suddenly experiences a dramatic rise in value, the payoff becomes enormous because of the large amount of shares you were able to afford up front.

Consider a simple example where you purchase 100 shares of a stock valued at $1 a share. If the price of the stock were to increase to $2 a share, you would double your initial investment. You wouldn’t be able to see nearly the same return on $1 increase of a more typical stock priced around $15 a share. Not only would the initial investment cost you $1,500 to buy 100 shares, but the $1 increase would net you less than a 10 percent increase on your investment. Based on that basic scenario, it is a bit easier to see why penny stocks are seen as a way to get rich quick.

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While making money with penny stocks is nice in theory, the practice is actually extremely difficult. The prices of these stocks are extremely volatile, and even small changes in the market can have a major impact on the price of a penny stock. After all, even a change of a few cents is a relatively large percentage when the total price of the stock is only $1. As a result, you need to be very attentive to the prices of penny stocks you own, buying and selling rapidly at times in order to maximize gains and minimize losses.

Gaining as much information about the company as possible prior to investing in a penny stock is crucial. By knowing the specifics, you can somewhat gauge what market trends will affect your stock. To a degree, a penny stock company in the agricultural field or financial industry will behave like a more typical stock under the same market conditions. While this isn’t a steadfast rule, it is definitely your best chance at predicting which way your stock will trend.

One potential pitfall of penny stocks is that some companies attempt to inflate the value of their stock by buying large amounts of shares in order to drive up the price. The problem with this self-induced increase in price is that the liquidity of the stock becomes questionable. Since the stock is not necessarily being purchased based on optimism in the company’s long-term potential, a bunch of buyers looking to buy and sell for quick buck are left holding the stock. When it comes time to sell, it isn’t always easy to find a partner in this scenario, which could leave you holding a large amount of stock when it eventually plummets.

The important thing to remember with penny stocks is that there is going to be a degree of look involved in such a speculative practice. Your aim shouldn’t be to win with every single investment but simply to hit more times than you miss. Penny stocks aren’t a long-term investment. Making money with them is all about acting quickly and knowing which stocks to buy and when to sell. If you hone the craft, you can make money buying penny stocks, but even the best don’t make money with every purchase.

Please leave a comment below as we are always interested in hearing feedback on our articles or even other tips and advice we forgot to mention that you have used to make money investing online investing in Penny Stocks.

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