The Pitfalls of Day Trading Penny Stocks
Penny stocks are stocks that are valued below $5 and are traded thinly – this is how the SEC or the Securities and Exchange Commission puts it. Due to the high risk involved in trading penny stocks, they are also often called “the slot machines of the equity market”. Most of the penny stock picks become worthless, but one occasionally becomes valuable.
Some of these penny stocks also jump in price and fail. Then again, there are also others that go big time. If you want to start trading penny stocks, it is highly recommended to spread your money over manifold stocks. In this way your chance is higher picking a winning penny stock.
If you are an investor who is interested in penny stock picks, you have to consider your portfolio’s current state and a company’s recent history before you invest. In case your portfolio is heavy in specific industries e.g. pharmaceuticals and telecommunications, it would be really unwise and impractical to invest in penny stock shares. If you are an investor like this, then it is recommended to use penny stocks to expand your portfolio and attempt to make some quick, extra profits.
A penny stock trading expert will also tell you to study a 12-month pattern before buying a particular stock. Penny stocks can be start-ups with no strong reputation. They can also be established companies which have fallen during difficult times. Anyway, it is still highly recommended to conduct a 12-month analysis and a 30 day review, before you make a final buying decision.
Moreover, because penny stocks are usually sold outside of major exchanges, you have to analyze over-the-counter listings to see speculative opportunities. You can search the Internet for websites that offer quotes on a per-minute basis. You can also search for those that provide transparent lists of rules for stocks. Of course you need to make sure that you do not fall for scam sites. A lot of websites present informative articles as well as OTC stocks daily analysis.
Select an online broker that has well-balanced tools and fees to suit your needs. Use these tools to evaluate prospective penny stocks. Happy trading!.
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