The ways to invest into penny stocks are continued in this article and they are as below:
- Don’t Listen to the Company’s management: It is advisable not to trust anyone while investing into these penny stocks. The companies are trying to get their stock up so they can raise money and stay into business. So investor needs to be cautious and follow the data from authentic source.
- Use Stop Loss: These stocks are illiquid and highly volatile. Investor need to put a strict stop loss trading into these penny stocks because they can fall and rise as much irrespective of the market sentiment. For risk reward in your favor, aim for 3:1 or 4:1 instead 1:1. It means if you target one dollar upside for a dollar stock than stop loss must be at 20 cents to be at better risk reward ratio.
- Buy the best of the bunch: An investor while choosing the penny stock must ensure the stock is on an uptrend. Better buy the stock which is trading at its 52 week high and that too at consistent high volumes. It is easy to find the stock fulfilling these two parameter but need to ensure that the stock is not a pump and dump scheme.
- Don’t trade large positions: Investor must be careful not to trade the penny stock in large quantity of shares. It is very easy to get in and difficult to get out of the penny stocks due to lack of liquidity. Investor need to ensure that not to buy more than 10% of the stock’s daily volume.
- Don’t love the stock, only Trade: Every penny stock company wants investor to think that it is an exciting story that will revolutionize the world. Most investors fall in love with the stock while it is going up and don’t sell them until it fall back.