Earn From Stocks

Wehave all heard about the trader who gloated about his 100% or 1000% return on a stock or about the bloke who made it rich by making an investment in small caps, unexplored stocks that made it massive. In principle, it looks to be too straightforward. Invest in a couple of penny stocks, then sell them when they move up. Sadly, it is too straightforward. Too straightforward to lose money 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 Naz
These include companies that dropped from grace ( Enron ). Even though it is possible that they may see better days in the future, the percentages are stacked against them. Its usually best to avoid trading these stocks. If you’re feeling the enticement is too much, wait till the stock begins to rebound.

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

2nd, lets look at some pointers that may help the penny trader avoid making expensive mistakes.

Due Diligence
Stocks mentioned on the Pink Sheets do not need to file annual or quarterly statements. This makes starting your due diligence difficult. Often , the information is dodgy at best, and generally 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 annual and quarterly statements. This provides some measure of finance success. You’ll find most penny stocks lose money, whether thru managerial incompetence, or research and development. The key is to identify the firms whose executives have a record of consistently earning, or at the really least, delivering on their business plan, and decreasing expenses.

Penny Stock Newsletters
Being a writer for a small cap newsletter ( http://www.1source4stocks.com ) puts me in a biased position when talking with 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 probably find arelationship between the amount of shares they’re being paid, and the rating on the hype meter. Does that suggest that you should avoid any stock where the company is paying financier Relations pros in shares? No. Just bear in mind that they’re selling a tale, and if they sell the tale to other investors, they’re going to gain. This is noproblem if you get in early, but might be adifficulty if you are not in a position to jump in immediately.

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 firms, and are looking to ensure that they aren’t passing afeeble stock your way simply to pay the bills.

If a company is paying an IR professional money to profile a stock to its subscribers, should you avoid it? Naturally not. Think about the payment as advertising. They’re promoting the company, and trying to get exposure. Like any company, the only way to get exposure is through some method of advertising. So don’t dismiss a paid profile as hype. Keep it in the back of your mind while you are reading the profile, but concentrate on the profile. You can find a diamond in the coarse that no one has uncovered.

Volume
If you want to earn cash, you have to be ready to sell and buy enough shares to lock in your profit, or protect your capital. If ABC company’s daily volume is only 5 hundred shares a day, it might take you a couple of days to accumulate a position worth taking. If there is bad news, who’s going to buy your shares? If the volume is low, stay away. It’s not worthwhile. If youare feeling that strongly about owning the company, consider contacting the company directly and working out a deal.

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 youtake your profit? Write down these answers before you place that buy order.

Buy Results, Not the Story
If you buy the hype, percentages are, you’ll finish up being the last one to own the shares, while everybody else has sold off their position. Look at a company, have a look at what their business plan was, and confirm if they have followed through on that plan. Were they successful? Did they bring a product to market on time? Did the company follow through on its purchase system in the fashion they set out? The hype might get you a fast pop , however , unless you are watching your trading screen each 2nd of the trading day, you will miss out.

Penny stock investing can be lucrative. Remember, you are taking larger risks than you would if you were buying shares in a bank stock. That risk can be rewarded with returns that you cant get with a bank stock, or, it’s going to be had a meeting with a large loss and a bad taste in your mouth for trading penny stocks.

Size matters
There are thousands on thousands of penny stocks. The dimensions of your position shouldn’t be anymore than $2000 – $3000. While this might not seem like much, remember that it is not unusual for a $0.10 company to fall to $0.05. That’s a 50% loss. If your position is $10 000, a 50% haircut leaves you with only $5000. Keep your losses to a minimum. If the Corporation 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 defend your previous profits. Capital preservation is the key to successful trading.

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