With a whole rout of trading gurus trying to convince new investors that low share prices automatically mean a bargain price, the beginner are often mislead that lowest prices have the greatest money-making potential. Because, a $2 per-share-worth stock needs to gain $2 to double the investment, right?
If you believe this math then penny stocks are the investment for you. These are the most effective strategies.
Watch the Fluctuations
The substantial volume of shares that can be purchase, you as an investor can make huge profits by exploiting the momentary changes in the stock value. In addition, the experience has shown that short-term strategies actually carry less risk than relying on long-term trends that can change any time.
It is paramount that you research any penny stock company before deciding to invest. Although these companies are relatively unknown and hard to trace, by analyzing the historical fluctuations of the stock’ value and size, together with business news related to the company in question, an investor can get a rough estimate if this is a sound investment.
The rising popularity of these cheap shares motivated many companies to resort to artificial increasing of their stock value by creating a panic among investors, encouraging them to purchase large quantity of the stock, inflating it like a balloon. When the price per share reaches a desirable level, the businesses sell their own shares at a price that is by large higher that their worth.
Penny Stock Volumes
It is always advisable to choose a penny stock company that provides a high volume of shares. In a day trading, an investor can acquire thousands of shares for a low price. Also it pays to find out if the same company shares attract a large number of investors.
High demand of a particular stock means that it is best to sell them once they have reaches a substantial price. Using this strategy, you can avoid the negative effects that arise from sudden drops in
the stock values.
Exploiting their Volatility
In trading established stocks, the investors face the problem of having to hold thousands of shares for years before their price makes them, profitable to sell. There are many problems related to that, as the stock company might sell its assets, go out of business or be purchased or merged with a larger company.
Penny stocks, on the other hand, are more volatile which makes them suitable for day to day trade. An experienced trader will try to acquire those stocks whose price fluctuates by large margin from day to day.
While no one can dispute that this carries a higher amount of risk, volatility is itself the reason why an investor doesn’t need to hold a stock for a long period of time. Buying large amounts of volatile stock can increase one’s profits on a short-term scale.
Another strategy that significantly minimizes the risk is to trade in stocks of a company that you have researched and analyzed well. By doing so, you can predict changes in the stock value, increasing your chances to become wealthy. For example, many penny stock businesses are operating on a small scale, generating a low number of monthly sales. As a consequence, these companies have good chances to run out of business faster than those that are generating substantial income.
Another type of company that is interesting is the one that has retails in diverse geographic regions, maximizing its chances for survival, as well as companies that are developing products and services that are in demand.
As in a wave motion, when a penny stock value drops, a large number of trader will want to sell their shares. When this happens, they become cheap and can be bought at a bargain price. When their price reaches a high point again, they should be let go.