Is There A Safe Way to Trade Penny Stocks?

November 1st, 2011 by Guest Leave a reply »

Is There a Safe Way to Trade Penny Stocks?

Trading any stock is risky, but penny stocks can be particularly risky. Penny stocks do not have a high liquidity, they carry the same risks as other stocks, and even though they cost less and can be funded with a payday loan, you can still lose a bit of money with them. However, new investors can learn much by trading penny stocks and find ways to reduce the risks associated with penny stock trading.

Watch the Trends

If you are trying to figure out how to make purchases that rise quickly, you should spend time watching the trends in your chosen stock. You may find that some stocks have a tendency to drop three weeks in a row and suddenly rise. Or, some penny stocks rise during certain times of the year. If you know what to expect in terms of price fluctuations for a particular stock, it is much easier to time the market to buy low and sell high.

Look for Larger Trade Volumes

Penny stocks may trade in small volumes or large volumes. A stock that has a smaller volume of trades is not going to be as stable as one that has a larger average trade volume. Keep your penny trades to stocks that have on average at least 100,000 weekly trades to be on the safe side.

Harvest Short-Term Gains

Unlike other types of investments, penny stocks should be viewed as short-term investments. If a stock climbs 25 cents in a day, it may be time to sell instead of hoping for a magic $1 per share gain. Price fluctuations in penny stocks are severe, so it is important to take those gains when they surface, instead of hoping for long-term gains that may never arrive. Learn the strategies to play penny stocks safely and you can help increase your potential for profit when you graduate to bigger priced stock shares, too.

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