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Why Trade Penny Stocks – Aren’t They Worthless?

November 18, 2016 By Matt Thomas 2 Comments


Penny Stocks Tend to Get a Bad Rap:

There are many traders and investors that avoid penny stocks like the plague, viewing them as the “scum” of securities. Why trade little-known tickers with questionable business models and financials when you can trade proven blue-chips with considerable market share and years of experience in their respective industries? After all, penny stocks are penny stocks for a reason.

The truth is, there’s massive profit-potential in penny stocks if approached correctly, but there are still risks that need to be monitored. The main concern: these companies aren’t likely to succeed. Thousands of ignorant investors think that big companies like Microsoft and Wal-Mart once started as penny stocks, but that’s a mere fallacy. Penny stocks typically aren’t good long-term investments because they lack enough history or publicly available information in order for investors to make informed decisions. They do have one major asset on their side though: volatility. And that alone provides short-term trades with opportunities for profit. Blue-chips will never run 100-200% in a few days, but that’s not out of the ordinary for a penny stock. As long as traders understand what they’re getting into, the penny stock arena is an opportunity for substantial returns.

Related Post: What is Penny Pro? Access the Largest Penny Stock Room on Wall Street

Filed Under: The Daily Dose: Thought-Provoking Questions For Stock Traders

Comments

  1. Simon says

    November 25, 2016 at 9:05 am

    Penny stocks can make substantial profits and many have done yet they can also make substantial losses too as you describe.

    I once got involved but at the time was uninformed and inexperienced leading to losses unfortunately. It was mainly down to stupid headlines and jumping in after the event only to find losses at the end of the period. Something you learn as you become more experienced.

    Regarding acquiring information on penny stocks is difficult as many of them are new to the market without any history. Many can get pumped up through fascination and headlines and this is the worst scenario yet there are always good ones to be found, it’s just having the experience to hunt them down.

    I turned my attention to trading forex through technical analysis and really enjoyed the role but couldn’t make a sustained living from it. Do you get involved with penny stocks?

    Simon.

    Reply
    • Matt Thomas says

      November 29, 2016 at 4:41 pm

      Hi Simon – you’ve made some great points about penny stocks here. If individuals are looking for good long-term investments, then penny stocks aren’t the arena to be involved in. Chances are low that any one of them will skyrocket and turn into extremely profitable companies. The only method that can potentially be profitable if approached correctly is short-term trading because of the volatility that penny stocks can provide. Percentage swings in price on a $2.00 stock can be much larger than on a $200.00 blue-chip stock. Good news, events, etc. simply mean more to smaller companies and can lead to a major increase in sentiment and speculation. The major concept to understand is that Wall Street is one big pump and dump, but there’s more room for profit in penny stocks if you can position yourself before the potential ride up while limiting the risks.

      In reviewing services such as Jason Bond Picks, Top Stock Picks, Penny Pro, BioTech Breakouts, and K Capital Stock Alerts, I’ve certainly been involved in trading low-priced stocks under $10/share. I’ve traded many of them within the past few years, including: GEVO, PTN, NVTA, CPRX, ANTH, SIEN, ARLZ, RGSE, AMRS, CEMP, MEET, GLUU, ZAGG, and the list goes on. Each trade depended on various catalyst events, technical analysis, and even some fundamental analysis – some were successful and others weren’t. The key is to have a detailed trade plan going into each position, stick to stop losses, and lock up profits. In the middle of this year (while I had access to Millionaire Roadmap), I was able to grow my relatively small portfolio 23% within a 3-month period trading some of these names – that’s over double the average annual return of the S&P 500.

      Reply

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