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Penny Stock Guide

When trading penny stocks, you need to be extremely cautious. You must know the market and be able to guess when a stock price would go up and down. You must know what a pump is and must always be watching the market. Penny stock trading is not like trading normal stocks. It is a lot more time consuming and intense. People say that you cannot make money trading penny stocks, but that is not true. It just takes a lot more work and knowledge. You will learn here about how to make the right decisions when trading penny stocks and stand out above the rest of the traders. It will require a lot of hard work and dedication so do not take this lightly.

You also need to have at least a decent knowledge about how the market works. In penny stocks, the market is very different from the usual stock market. There are many pump and dump schemes out there. This is either something that you can decide to worry about, or something that you can learn to take advantage of. When you see announcements out there in emails or advertisements that say a certain stock is going to hit it big, you may just look away and think nothing of it. You may even tell yourself that it is just a big scam. Well in a way it is, but it can also be something that you can profit off of. When you see these messages of a stock being pumped or advertised, the company that is advertising it may have already bought a lot of shares and the price of the stock may have already increased. When this happens, it may be best to lay low, but if you are the first one to hear about this, you now have an edge.


The trick is to find penny stocks that may be pumped in the near future. Stock promoters can bring any penny stock’s price way up if they so much as send out an email. If you find out what will be pumped before the email comes out, then you will be able to buy before the pump. This requires a lot of research and could take a long time, but the payout is huge. You will need to mainly look for any hint of big news. If you can find out that a company is going to release some big news soon and the stock price has not yet gone up, then that stock may be pumped.

This is not a flawless tactic and you may end up buying a stock that is worthless and will not be pumped so you should only try this with any expendable income and you must also know exactly what you are doing. For people that are just starting out with penny stocks, day trading may be your best option. People love making quick cash by day trading and it may be slow with the normal market, but with penny stocks, everything is fast paced. A trick to this is to find a stock that is just beginning to become pumped up. You need to buy that stock and sell it within minutes for a slightly higher price to make money. This is the most common and quickest method. The only problem with this is that you need to watch out that the stock isn’t at its peak; otherwise you may end up with nothing.

Volume is one thing that you need to pay very close attention to with penny stocks. A stock with low volume may be impossible to sell. Even if the price of a penny stock goes up a hundred percent, you will not be able to sell it off if it does not have good volume. The volume of a stock is usually shown as how many shares have been traded that day. A number over a million is usually a good sign, but watch the stock price as well. A volume of a million is not much if the shares cost a thousandth of a penny each. Volume is very important and you should always look at a stocks average volume before trading it.

When dealing with penny stocks, you need to look out for news. News and the anticipation of news, are the biggest price movers. A lot of “pinksheets” do not have to file a lot of paperwork like normal stocks do and it may be hard to tell where the company is a lot of the time. This is why when a penny stock releases news it immediately becomes a huge deal. Good news followed by a good pump, may shoot a stock price high into the air. When the stock price goes up, then it is a good time to sell. Penny stocks usually shoot up and go back down in a short amount of time so it is a bad idea to wait for too long. Find the peak, and sell as soon as possible.

Stock trading is risky business, especially penny stock trading. The more of a risk something is, the higher the reward. You need to only invest money into penny stocks that you know you can afford to lose. Do not invest your life savings or some obscene amount of cash. When you first start out, start small. Once you start to get the hang of investing in penny stocks, you may feel safe to invest a little more. Only then is it a good idea to do so. Penny stock trading can be extremely rewarding, but there is a lot to learn out there and it is vital that you learn from both your mistakes, and the mistakes of others. The market has no sympathy for those that lose money and you will not get any breaks. Make sure that you know what you are doing and do not blatantly buy a stock just because somebody tells you that it is the next big thing.

How To Diversify Your Penny Stock Portfolio

If you’re interested in diversifying your investment portfolio, it’s a given that you’re going to look for investment opportunities that will serve to enhance value while offering the safety of a range of vehicles, such that your risk of losing wealth should any portion of your overall portfolio go south is mitigated. Penny stocks might have a lower share price than other types of equities, but that’s the only difference when the subject is diversification: if you’re interested in diversifying your penny stock portfolio, you’ll be performing exactly the same exercise as you would if diversifying a portfolio made up of any other kind of investment products. The key is to seek portfolio enhancements over a range of companies and industries, spreading out your chances of earning significant gains while simultaneously minimizing your risk of loss, regardless of whether you’re investing for the short term or the long term, or whether you’re investing for growth or for value.

One proven method of portfolio diversification is to specifically seek out penny stocks in different industry segments, with different trajectories, and to purposefully place varying percentages of your available funds into each. It’s a good rule of thumb to try to limit your investment into any one stock to a maximum amount equal to 10% of your portfolio (some experts would argue that the cap should be at 5%), so that your risk profile remains as diverse as possible. Correspondingly, the companies into whose stock you invest your funds should be equally varied. Begin by researching businesses in industries which you understand, of which you have special knowledge or expertise or, at the very least, which hold a special interest for you, because the knowledge you have of the particular industry segment will be of great assistance in helping you to identify value when you find it. Regardless of the industry in which you begin to search for picks suitable for diversifying your portfolio, you should pay heightened attention toward identifying unpopular stocks that reflect this good value: when a stock is under-appreciated, regardless of its market capitalization or of which exchange it trades on, there’s extra room for growth in both share price and volume and thus, increased chances of trading for gains. Investing in under-appreciated gems is a prudent strategy for portfolio growth which you can literally bank on.


For those retail penny stock investors who lack specific industry knowledge of any kind, and who choose not to diversify their portfolio by investing in a mutual fund or ETF specializing in penny stocks, a solid guideline would be to seek to identify a target stock in each of a minimum of five separate business segments, being sure that the segments on which you focus your attention neither overlap, nor are highly seasonal. If you can further sub-diversify by finding stocks that individually are associated with differing degrees of risk,  then you’ll be well-positioned to diversify your penny stock portfolio on more than one level; further, if these businesses play out in varying geographic regions, then you’ve added even another level of diversification.

Start by taking a closer look at penny stocks issued by companies which occupy space in growing sectors, such as technology, alternative energy and healthcare: such businesses suffer little to no seasonality and, depending on their specific niche within their category, shouldn’t be too dependent on any one particular customer or vendor for the on-going rolling out of their business strategy.  Other sectors to consider could be as varied as mining, transport/logistics and even entertainment. When diversification is the issue, the specific industry is less important than the overall mix of equities which you are bringing together in your one basket of investments.
You’ll have to roll up your sleeves and dig deep in order to sift through all of the noise and find the penny stock picks that will make the perfect additions to your portfolio. Focus on certain companies’ stock for value, and on others for growth (another level of diversification). You’ll have to read balance sheets and income statements, as well as a host of investor materials, in order to weed out the non-contenders in the industries which you’ve chosen. Then, once you’ve arrived at a shorter list of investment candidates, you’ll have to sharpen your focus to narrow things down to your optimal investment choice. Pay close attention to this methodology, because with the next industry you move on to, you’ll need to perform the same exercise again.

It’s of great importance to this process to ensure that your research and analytical skills are sharply honed. Take a very close look at your chosen picks’ stock history to make sure that you’ve gotten a meaningful feel for its normal rhythm and movements: without knowing what’s typical for the stock, there’s no way to recognize when the stock may be trending, or whether it even has prospects to do so. Plot the stock’s history over time on your charts (or access charts from your full service broker or an online finance site such as yahoo finance or free real time), and then plot its most recent movements, comparing the two; be sure to look for any recognizable patterns which may help you to evaluate the optimal time to buy in, or to classify the stock as a non-starter. Investigate market cap, volume, net asset value, P/E ratio and book value, and compare these to industry norms to see where the company is situated in the pack. If the trend for growth is evident and the stock appears to be undervalued, chances are good that you’ve found a keeper. To verify your hunch, then, spend just a little more time looking into company management to gauge whether they’re generally considered competent, and whether they’ve got the chops to lead the company over the threshold to the next level of success, and don’t forget to check with the SEC to read company filings, if any are available. If all looks good, place your order, and remember: while all forms of investing are associated with certain risks, the risks of penny stock trading are significantly lower than when trading in other types of equities simply because the costs of buying in are so much lower. Hold your position while continuing to monitor your shares closely: if your initial analysis proves correct and the shares move in the right direction, you then have the luxury of deciding whether to increase your holdings, or whether to simply bask in the satisfaction of knowing that you’ve added portfolio value and diversified at the same time. When you’re done patting yourself on the back for a job well done, get out there and do it again with another pick from another industry, reinvesting your gains to maximize portfolio growth. After all, isn’t that what it’s all about?