Penny stocks are often presented by companies who have not been able to hold their rating with Nasdaq, Dow Jones or similar financial entities. Many of them hope to recoup their losses by selling penny stocks – and some of them actually do. Others continue that slow slide into business failure.
Some penny stocks are puffed up by advertising to make them look good. More and more investors are invited to purchase stock, regardless of whether the company can sustain responsible stewardship of the investment. As more investors are added, the value of the stocks is diluted. Then, finally, the devalued stocks are sold off. This process is what is known as a “pump and dump”.
By this time, readers might wonder if there is such a thing as a good penny stock. As it happens, there actually are. Some companies really do use penny stocks to pull themselves up to the point where they qualify to appear on the Nasdaq or Dow stockcharts. The hard part is distinguishing between the companies that are on their way down, the many scams and the best penny stocks – the ones that really will earn money and help you to make your fortune.
That means doing some homework – such as learning to read stock charts. If you don’t have a lot of money to invest in research, reading the free or low-cost ebooks on penny stock investing is a good place to begin. Or make a visit to your local public library’s reading room and spend some time browsing the magazines and books about stock market investing. Pretend you are going to buy some stock, and track how your choices fare in the market for several weeks. When your pretend buys start to consistently show profit, then you are ready to consider investing money.
You can find free stock charts on the Internet. Some of them are even available as apps for your Smartphone or Android. This is a truly good thing because one of the characteristics of people who do make money buying and selling hot penny stocks is that they spend at least eight hours a day paying attention to changes in the market, buying and selling in response to the way certain stocks are behaving.
One advisor encouraged investors to go ahead and sell as soon as they had made as little as a ten percent margin on a stock. He explained that one of the ways that people lose their shirts is by trying to hold on to their stocks too long, adding that it was better to make a little bit than to wait and lose a lot.
Another advisor suggested tracking a company for several weeks before investing in it. Knowing a company’s background will let you know whether it is moving up the financial ladder toward security or whether it is steadily losing ground. It is difficult to know exactly which stocks to buy today. Even with the top penny stocks, the market is volatile and can change within minutes under the right circumstances.
That is why, as an investor, you need to make your stock chart your special friend. Never mind chatting up crossword buddies or farm game trading pals. Serious penny stock trading takes time, concentration and paying attention to the game. You also need to know how to lose – because even if a stock looks good, it might bottom out instead of netting a nice profit.