The purchase price of penny stocks is generally very low, sometimes less that a penny, which is why they are known as penny stocks, but as well as being relatively inexpensive, they are also very volatile and their value can rise and fall very quickly. Unlike the stocks and shares of large companies whose value rarely falls precipitously in a very short space of time, penny stocks are often considered a risky investment, which makes it vital that you do some research before you consider going through your life savings into the penny stocks market.
In order to consistently make money on penny stocks, you need to devise a good system for buying and selling. There are lots of penny stocks scams out there, so before you invest any money in penny stocks, always spend a little time doing some research on the company in question to make sure it is a good prospect. Be very wary of get rich quick emails and newsletters supposedly from reliable and unbiased sources and if an investment opportunity sounds too good to be true, it is usually a scam.
Knowing when to buy and sell penny stocks is the key to making money. Ideally you need to learn to recognize when a stock is about to rise in value so you can buy it before others do. You also need to learn how to recognize the signs that a stock is about to lose value so you can sell it quickly.
Greed is often the downfall of penny stock investing. If your penny stocks double in value it is all too tempting to wait and see if they will triple in value before you sell them on. The big danger with this approach is the value of the penny stocks could soon fall and instead of making a decent profit at double the value, you lose everything. So instead of risking everything for a big profit, always sell a percentage of your stake when its value reaches a predetermined level. That way, if the value subsequently falls, you have not lost everything.
A good approach for new investors is to practice your investment strategy for a few months before risking your money. Do some research into which companies might be a good investment opportunity and then spend six months tracking your investments to see how they fare when you make decisions on buying and selling the penny stocks, just like you would if you had actually bought them. If you make a profit at the end of the period, your research has paid off and it is a good time to put your system into practice for real.
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