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How to Buy The Best Penny Stocks and Avoid The Bad Ones
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It's said that all of life's mysteries are solved if you ask the right questions. In other words, the right information is the key to success. This applies to the stock market as well. If you are new to the stock market and unsure on how to buy penny stocks, this article will help you make the right decisions.
Penny stocks can be your ticket to riches, but only if chosen wisely. Being extremely volatile in nature, penny stocks provide with equal opportunities for profits and losses. Below are five tips that will help lower the risk of penny stocks.
#1. A penny for your thoughts, reason and buy.
We can all dream about investing in the next Microsoft or the next Apple but the chances of finding a similar success story might be very difficult. The companies that trade penny stocks are starting out and have bought a shell company because of the simple fact, that it was cheaper than an IPO or do not have a compelling business plan to justify investment banker's money for an IPO.
This does not make these companies a bad investment but you as an investor should be realistic when investing in a company.
#2. Check whether the company is capable of making profits.
It's not surprising to see a new company running losses but it's important to know why they are losing money. Can the issues be managed? Will the company look for further financing or will they seek joint partnership with other companies.
If the company is capable of making profit, it will use the money to grow which will ultimately increase the share value. Before buying penny stocks, do your research on the company to increase the odds of good ROI (return of investment).
#3. Pay attention to the trading volume.
See that the company you are investing on has a consistent high volume of shares being traded. If you look at the average volume, it can be misleading. Also look at the amount of trade each day, find out whether it is one insider selling and purchasing. You should always look for liquidity. If there is no volume, you will be left with inactive shares where the only way to sell them would be to dump them at the bid. This will create more selling pressure and as a result, sell price will decrease.
#4. How to find about info about the stock?
Most people find out about different penny stocks via mailing lists (like mine :-)). Do not be under the impression that all newsletters are bad; there are many excellent penny stock newsletters out there (like mine :-)).
How to spot the good companies? Subscribe and keep track of the investments. Find out whether the company has a good track record of providing the subscribers with good investment opportunities. This way you will be able to find out whether the newsletter is of any good or not.
#5. Always have a plan, and make sure that you stick to it.
Penny stocks as you very well know are extremely volatile. They might move up quickly but they can fall back down as well. Keep your stops close and if you come to a stop, move on to the next opportunity.
It is best to lock in your profits but this should be done without harming the upside potential of the stocks.
Another advice is, never invest more than 20% of your entire stock portfolio in penny stocks. If you put too much money then you increase the risk of losing your investment capital.
Choose wisely and remember while buying penny stocks, finding the right stocks is crucial for gaining profits.
Buona Fortuna - good fortune! :-)
Stock Buy/Sell Activity & Other Comments:
Headquartered in Houston , Texas, Far East Energy Corporation focuses on exploring some of the largest coal bed methane (CBM) projects in China . They do this through their agreements with ConocoPhillips and China United Coal bed Methane Company, Ltd. (CUCBM). Coal bed methane, a form of natural gas, is a clean-burning fuel that China plans to use to supply part of their enormous energy needs. Far East Energy trades on the OTCBB, and they have additional offices in Beijing, Kunming, and Taiyuan City, China.
Peace :-)
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