Earn From Stocks

Wehave all heard about the investor who gloated about his 100pc or 1000% return on a stock or about the guy who made it rich by investing in tiny caps, unexplored stocks that made it massive. In principle, it looks to be too easy. Invest in 2 penny stocks, then sell them when they move up. Unfortunately, it is too easy. Too easy 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 Nasdaq
These include companies that dropped from grace ( Enron ). Even though it is possible that they may see better times in the future, the chances are stacked against them. Its sometimes best to avoid trading these stocks. If you feel that the enticement is too much, wait until the stock begins to rebound.

New Start Ups
Every year there are hundreds or perhaps thousands of firms who made a decision 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 corporations will file for an IPO, many others will start off trading on the OTC BB as a penny stock

2nd, lets look at some tips to help the penny stock trader avoid making costly mistakes.

Due Diligence
Stocks mentioned on the Pink Sheets don’t have to file yearly or quarterly statements. This makes beginning your due diligence tough. Frequently the data is sketchy at best, and usually its biased. You need to expect a stockholder to claim good things about the company. If the company failed to have potential, they wouldn’t be holding it. Or, they may be hoping to unload their shares and hope to talk you into buying.

Stocks mentioned on the OTC BB file yearly and quarterly statements. This provides some measure of financial success. You’ll find most penny stocks lose money, whether through managerial incompetence, or research and development. The key is to identify the firms whose managers have a record of solidly earning, or at the very least, delivering on their business plan, and decreasing expenses.

Penny Stock Newsletters
Being a writer for a penny stock newsletter (http://www.1source4stocks.com ) puts me in a biased position when chatting with penny stock newsletters. Here’s 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 likely find arelationship between the quantity of shares they’re being paid, and the rating on the hype meter. Does that suggest that you’ve got to avoid any stock where the company is paying investor Relations professionals in shares? No. Just bear in mind that they’re selling a tale, and if they sell the tale to other shareholders, theyare going to gain. This is not difficult if you get in early, but might be an issue if you are not in a position to jump in right away.

Have 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, you’ll likely find that they do their own research in all companies, and are looking to make sure that they aren’t passing a puny stock your way just to pay the bills.

If a company is paying an IR pro money to profile a stock to its subscribers, should you avoid it? Of course not. Think of the payment as advertising. They’re promoting the company, and trying to get exposure. Like any company, the only possible way to get exposure is thru some method of advertising. So don’t dismiss a paid profile as hype. Keep it in the back of your intelligence while you are reading the profile, but pay attention to the profile. You may find a diamond in the rough that no one has discovered .

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

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

Size matters
There are thousands upon thousands of penny stocks. The size 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 small. If the Firm has done well, and you are up, either take your profits off the table, or add to your position, and be sure to reset your stop loss so as to protect your prior profits. Capital preservation is the key to successful trading.

Have a plan before you purchase. What are your reasons for buying. What’s your exit strategy? Where is your stop loss? At what point will you are taking your profit? Write down these answers before you place that buy order.

Penny stock investing can be profit-making. Remember, you are taking larger risks than you would if you were buying stocks 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 met with a huge loss and a bad taste in your mouth for trading penny stocks.

Do your homework, do not believe the hype, and protect your capital.