Penny stocks can be extremely risky and can be extremely profitable too. How do you avoid the former and reap the latter? There are some tips that can help you with your penny stock trading which include:
Managing your risk - Nobody is a perfect trader and losses will happen. This is something that every investor needs to accept. Cutting losses as quickly as possible is one of the best ways to manage your risk. Cut your losers loose as fast as you can to minimize your overall losses.
Keeping an eye on market makers - Market makers can sometimes take a stock one way or the other. Though there have been many theories said about market makers that may not hold truth, watching them sometimes can give you a telltale sign of which way a stock might move. Betting on the right direction can lead to extreme rewards.
Diversify your positions - You don't always have to buy stocks long. Shorting stocks is not something evil or wrong to do. There is a lot of profit potential in going short and in many situations a stock will decline one way or the other. By playing just one side you are lessening your opportunity to make money. Take advantage of shorting opportunities if they arise.
Follow the Company's news - Many penny stock traders fail to follow all the news and filings that a stock comes out with. If you want to be a good penny stock trader, you must read the news and even read the transcripts of company conference calls. There is vital information sometimes in these conference calls that can influence your trading decisions.
Be happy with the broker you are using - There can be many confusing fees and commissions charged that leave you with less profits than you would like when trading penny stocks. Some brokerages charge huge fees for trading penny stocks. There are less expensive alternatives so do your research and pick a brokerage whos commission prices you feel comfortable with.
Think the opposite - Many penny stock traders will follow the masses. Learning to be a contrarian trader can sometimes put you on the smart side of the trade.
Try not to average down - Buying more to average down your price is not always the wisest decision. A stock may continue to lose in which case your losses just become more substantial. Know when it's time to sell and run.
Do not be greedy - If you see your trade rocket up, take the profit. One of the worst feelings is to watch your stock come back down and you yielded zero profits for not selling when it was up. Pick targets and stick to your goals rather than hope for more.
Hopefully these tips can help any penny stock trader, beginner or experienced, trade better in the future.