The Best Approach To The Best Penny Stocks
People are constantly on the lookout for the best penny stocks. Picking the best penny stocks yield the best results. In searching for the best penny stocks, however, people can fall prey to scams promising instant wealth. They tout the best penny stocks as home-run, can’t-lose propositions. A wiser, more sound approach to penny stock trading will usually yield better results than trying to hit a home run each time. There are a few tips you should follow in order to make wiser penny stock investments.
First, avoid investing more than $2,000 in any one stock. Even if you feel it to be among the best penny stocks, limiting your investment also limits your risk. Penny stocks are inherently riskier investments than stocks traded on major stock exchanges such as the New York Stock Exchange. A limited-dollar investment can still pay off handsomely because penny stocks can have dramatic price swings.
Next, don’t be hurried into buying stocks. The best penny stocks will present themselves after thorough research. The best penny stocks usually don’t present themselves in rushed, pressured situations, such as over the phone with a telemarketer.
Third, don’t invest your entire portfolio into penny stocks. As with most other investments, you should diversify to spread your risk. Part of your portfolio, then, should be kept as cash. By doing so, you will be in a good position to take advantage of price movements. When you have a dynamic portfolio, you can multiply your returns.
Fourth, don’t get greedy. If your penny stock has risen significantly and has given you a good yield, sell the stock. Many investors might hold on to the stock, hoping for even greater returns. If your situation requires a long-term hold strategy, it might be wise to sell half of your shares when the price doubles, then keep the rest invested for the long term.
Fifth, don’t jump ship too early. Like many investments, penny stocks prices fluctuate widely. Sometimes, the fluctuations are very dramatic and occur in a matter of hours. Some investors might see a downward trend as a bad sign and prompt a sell-off. However, by keeping an even head, you could end up profiting from the volatility. This will depend heavily on your research as well. If you researched the stock thoroughly, you would likely know if a downturn is due to market forces or a problem with the company. If you aren’t able to stomach the wild fluctuations, perhaps a lower-risk investment vehicle, such as bonds, might be more appropriate in your situation.
Last, use a stockbroker who does not charge high commissions. Trading penny stocks often involve a high volume of transactions with smaller dollar amounts. Each transaction requires a commission to be paid and add up very quickly. You can avoid this situation by using a discount broker.