How to Pick Winning Penny Stocks: 5 Investment Tips!
Any security trading under $5.00 per share is called a penny stock. The companies which are new and have small market capitalization release penny stock in the market. Investing in penny stock can make or break any trader or investor.
If you are new in trading and you don’t have a ton of capital, investing in penny stock can be a wise idea for you. However before buying penny stock, you should study the fundamentals of a particular company. Then you should select some winning stocks and you should know the right stock to watch this week for taking calculated risk.
The temptation of making big returns is so huge, so it has attracted all types of new traders. That’s why they have become more popular.
Here are 5 tips to find the winning penny stocks, as per my experience.
1. Search For Stocks That Are Already Spiking:
The best way to find the spiking stock is to locate the stock that is already moving. There are hundreds of articles on the internet to help you understand this. But even if you miss the initial move, you can still catch some part of the move.
Pay close attention to the news and pre-open market to spot the spiking stocks. If you watch the news regularly, you can easily find the right information required.
2. Bet On Price Action:
You should focus on price action because it can give you the real story about the stock. Either stock is breaking out to its new high or it has crossed its VWAP. None of the news sites in the world can tell you this, but The Stock Chart will tell you a clear picture of the price action.
Trust me, it can be educational watching the price movements. It may be mundane, but you will figure out the specific patterns you wouldn’t have observed otherwise. So take it as a Game. It can be interesting to guess which way the stock price will move next.
Once you are confident about your observation, think of placing your money down on your predictions with small positions. If you are still not confident you should go for paper trading. Paper trading gives you trading experience without the financial risk.
3. Do Your Own Research:
I have to say that most traders lose their money because they are lazy. They don’t want to do their own research and they want someone to tell them what to do.
It’s better to learn how to catch a fish than having it caught by others. This is the way to find the penny stock which will work for you.
You might know because of news that a particular penny stock spiked before. So you are confident that it will spike again so you go for several thousand shares.
One term stuck with the penny stock is “affordable”. It seems a better deal if you are getting more shares in quantity for the same amount. Let’s say that you want to invest $1000 and you have two options:
1. Company A: selling at $1.00 per share
2. Company B: selling at $10.00 per share
Hence, you will be able to buy 1000 shares of company A and 100 shares of company B. So which one is offering higher value for your money? At first, you think it is company A. Most new investors will think since the price is low there is more opportunity for growth. This can be a counterproductive approach.
It is very important to assess the value of the company based on the company’s performance before you invest in any stock.
Everyone cannot become a penny stock trader. It is not everyone’s game. You should know that penny stocks carry high risks. So you have to have the risk-taking ability and skill to react quickly in uncertain situations.
However, if you are confident that you can become a penny stock trader then you have to educate yourself first. Know how to trade penny stocks with money management’s skills to bypass losing all your hard-earned money.