Wall Street

Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

Online Stock Market Trading 1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker's money for an IPO. This doesn't make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

fund manager and longtime Wall Street commentator Jim Cramer explains how to invest wisely in chaotic times, - or should be, when it's done right.

Stock Investing Course 2. Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn't trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding "dead money", where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

More stock trading, investing tips and tricks resources. Learn stock investing basics so you can enter the market with ease and can achieve success quickly.

Stock Market Game 3. Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

You can't delegate this to anyone. You've got to do it. Truth is, nobody can watch over your money like you can. (Farmers have a saying that the best fertilizer is the farmer's own shadow.) Strangely enough, when you make the commitment to watch every penny, the dollars start to add up quicker. If compound interest can make a single dollar bill grow into a million dollars...then it can also make a single penny grow into a million pennies... and that's ten thousand dollars. From a single penny Have you ever walked by a penny on the sidewalk and not picked it up because it was just a penny The truth is, that hidden beneath that penny is a pile of a million pennies. Pick up that penny and invest it right.

Stock Investing Game If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

There are many, exciting new ways of creating residual income Do you know who Warren Buffet is He¯ the smartest stock picker in history and the wealthiest investor in the world with a net worth in the tens of billions. What if Warren Buffet himself were to call you on the phone and give you a hot stock tip. He tells you to sink every penny into a certain stock. He says that he¯ invested a couple of hundred million of his own money and he feels the stock is a sure bet to double or triple in value. What would you say to him "Sorry Warren but I like to pick my own stocks by throwing darts at the Wall Street Journal!" Would you listen to the master or continue to do things your own way

Journal Prime Rate Street Wall 4. Have an entry and exit plan - and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you're out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

Cramer reveals his Ten Commandments of Trading ( Tips are for waiters). He explains why he's not afraid to compare investing to gambling (and tells you which book on gambling you should read to become a better investor). Five Rules of Investing ( Look for broken stocks, not broken companies).

Stock Market News If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

Stock Investing Basics 5. How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Stock Investing Software Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

Stock Market Trading How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You'll start to notice quickly if you have subscribed to a good newsletter or not.

Stock Investing For Dummy One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you'll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

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Stock Investing Tip Trading Penny Stocks | investment strategies for penny stocks
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