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How to Make the Most of Penny Stocks with Minimum Risks Involved?

A common stock share is usually priced at less than a dollar

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Penny Stocks, Risks, Time
Penny stocks are low priced shares. Pixabay

If you’ve spent any amount of time in stock trading or are even considering it, there is no doubt that you’ve come across the term ‘penny-stocks’. Is it all that they make it out to be? It is no secret that trading penny stocks, many investors have made their fortunes and have truly surpassed expectations, but is it for everyone? Can anyone turn a massive profit in penny stocks? In this article, we discuss the pros and cons, as well as how to make the most of your penny stocks.

What are Penny Stocks?

Penny stocks are low priced shares. A common stock share is usually priced at less than a dollar. Penny stocks are usually, highly speculative, and despite having some great attributes, may or may not be right for everyone. Even stocks priced at up near $5 can sometimes be referred to as penny stocks as they are not as expensive compared to blue-chip stock trading.

Since there is a potential for big rewards, many people get lured into buying penny stocks without proper knowledge and education. This is the reason why most people do not turn a profit and usually incur big losses. If you don’t have the stomach for high-risk investments, it may be a good idea to walk away from the entire concept. But, if the potential for big rewards outweighs the risks for you, armed with the right knowledge and skills, it can be highly rewarding.

Penny Stocks, Risks, Time
If you’ve spent any amount of time in stock trading or are even considering it, there is no doubt that you’ve come across the term ‘penny-stocks’. Pixabay

The vast majority of investors dealing in penny stocks go for dark and unregulated markets and sadly, almost all of them result in losses. A general rule of thumb is to get involved with regulated exchanges and only deal with high-quality companies so you are investing in more legit up and coming businesses.

Seek out an Honest Guide and Use Only Risk Money

It is a good idea, in any case, to seek the help of an expert and only use Risk money to trade penny stocks. The outcome of your results depends on choosing the right guide to follow, the right stocks to invest and the right exchanges to trade.

Anyone alluding you towards private jets, yachts and luxurious cars should be taken with a grain of salt. There is no guarantee and all they are selling is a lottery ticket and you are well aware of the risks involved and potential money wasted on lottery tickets.

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The good news is, there are many serious companies with a lot of potentials who are getting listed on exchanges for pennies. Since these are fairly new, their pricing is less than a dollar making it a penny stock. Eventually, these companies get traction and build a reputation until they start trading for dollars. These are the companies you should be keeping an eye on and with the help of the right guide, potentially invest in.

How do you make a profit?

An oversimplification would be, to simply buy into stocks at cheaper prices based on market data and your supposition that these prices will rise, and then sell these shares when they reach the desired price point for a profit.

You can also ‘short-sell’ these stocks if you believe the prices will drop instead of rising. In any case, the basic idea, of course, is to turn a profit, no matter how small.

Penny Stocks, Risks, Time
In this article, we discuss the pros and cons, as well as how to make the most of your penny stocks. Pixabay

To break it down, if you are just starting out, these are the steps you must follow to maximize your odds of winning at penny stocks.

  1. Educate yourself on Penny stocks
  2. Develop a winning penny stock trading mindset
  3. Familiarize yourself with Penny stock terms and jargon
  4. Understanding Key Technical indicators
  5. Understanding Key Penny Stock Chart Patterns
  6. Developing a trading strategy
  7. Start Trading

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OTC Exchanges

Unlike blue-chip stocks that are traded via big exchanges, Penny stocks are traded over the counter (OTC). All you have to do is open a broker account with OTC electronic exchanges, deposit funds and you can start trading right away.

You can open an account with OTC for as little as $100, however, it is not recommended to start this small as you can lose the money quite easily.

Once you have an OTC account, you can simply start trading just like you would any other stock. The transactions over OTC are usually faster than bigger exchanges.

Because of this simplicity, it is easier and faster to get involved with penny stocks than trading on the New York Stock Exchange or other larger securities exchange.

Penny Stock Analysis

Penny Stock Analysis is by far the most important thing you should set out to master if you are considering a long term relationship with Penny Stocks.

Stock Analysis refers to the process of analyzing a particular stock based on its fundamental and technical analysis. The fundamental includes basic things like revenues, profits, and earnings per share, etc. The technical side includes reading charts and evaluating the historical performance of the company to make an informed decision.

If you are just getting started with Penny Stocks, this is where you should be spending most of your time at, to get a handle on chart reading and analyses and familiarizing with patterns and forecasts.

Closing thoughts:

Penny stocks can be highly rewarding in the long term if you know what you are doing and everything begins with the right mindset, the right education. Having a reliable guide to follow with a proven track record gives the much-needed confidence and peace of mind for the marathon ahead.

Timothy Sykes Penny Stocks guide is a comprehensive, step by step guide which goes into the nitty-gritty of trading penny stocks and clarifies a lot of misconceptions in the field.

In the end, once you’ve had your baseline education, your next step is to open your brokerage account and devise a strategy that you will stick to. A strategic, long term approach is the only way to set yourself up for long term success.

 

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Under Time Pressure to Answer, People may Lie to you by Responding with Socially Desirable Answer

The idea has always been that we have a divided mind -- an intuitive, animalistic type and a more rational type

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Time, Pressure, Answer
The method of 'answer quickly and without thinking', a long staple in psychological research, may be doing many things, but one thing it does is make people lie to you and tell you what they think you want to hear. Pixabay

When asked to answer questions quickly and impulsively – be it at work or home – people may lie to you by responding with a socially desirable answer rather than an honest one, say researchers.

In other words, time pressure does not bring out a person’s good ‘true self’ and people may default to their desire to appear virtuous even if it means misrepresenting themselves.

“The method of ‘answer quickly and without thinking’, a long staple in psychological research, may be doing many things, but one thing it does is make people lie to you and tell you what they think you want to hear,” said John Protzko, a cognitive scientist at University of California, Santa Barbara (UCSB).

The idea has always been that we have a divided mind — an intuitive, animalistic type and a more rational type.

Time, Pressure, Answer
In other words, time pressure does not bring out a person’s good ‘true self’ and people may default to their desire to appear virtuous even if it means misrepresenting themselves. Pixabay

“The more rational type is assumed to always be constraining the lower order mind. If you ask people to answer quickly and without thinking, it’s supposed to give you sort of a secret access to that lower order mind,” Protzko explained in a paper published in the journal Psychological Science.

To test this assumption, Protzko and UCSB colleague Jonathan Schooler devised a test of 10 simple yes-or-no questions.

Through a survey, respondents were asked to take fewer than 11 seconds, or alternatively, more than 11 seconds to answer each question.

They found that the fast-answering group was more likely to give socially-desirable answers, while the slow answers and the ones who were not given any time constraints (fast or slow) were less likely to do so.

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The team plans to examine previous studies that used the quick-answer technique to see how much results might be driven by participants giving socially-desirable answers. (IANS)