Investing in penny stocks is all about defining the rules and playing by them as all of the big time investors have before you.
Big time stock traders and investors have played by the rules and started out small, or even very small, swearing by a defined set of rules that basically state they will not continue any cycle of failing that loses them money, over and over.
Losing money instead of learning these rules is something that is unacceptable and potentially crippling to a new investor - even though your brain is trying to tell you that "Heck, it doesn't matter, they're only Penny Stocks after all!" (Damn you brain!!)
However, follow a few simple rules and you should be ahead of the penny stock investing game.
Number One and MOST important - Never, ever, under any circumstance borrow money to invest; this is possibly the biggest rule to stay out of investment trouble.
Yes, I know! You think you have the upper hand with some “inside” information that could help you build a huge portfolio in no time!
So have thousands of others before you - and they were all WRONG!
Please, don’t jump on a story with the only answer being borrowing money. If you start to lose money on the stock market, then the debt repayment will come directly out of your pocket. If this happens, trust me - you are now in big trouble.
Even if you begin to make money then you will be spending it to repay the loan instead of saving or reinvesting the funds. This money will stand by and haunt you as you continue to try to make a living off of the stocks you are trading.
Always save up to be able to invest as a rule of thumb, debt will be chased until you finally catch up by being farther behind than you were to begin with.
DON'T DO IT!
Investing in profitable companies is a big rule to keep in mind when investing in penny stocks. I know that reads and sounds awfully silly and a waste of breath but believe me - sometimes people simply invest in a company without determining if the company is profitable or not.
Either they like the name itself - or the product / service the company offers - or even they know a cousin of the manager of the typing pool and reckon it's keeping it in the family!
Don’t be the sucker that buys a stock and then tunes in to the television or logs on to the internet to see that its quarterly earnings are down and its revenue per share is dropping like a four-ton boulder of the Empire State building - very hard and very fast!).
Find information on how to find a profitable company, it is readily available on the internet, and then determine which company to invest in. Guides for how to evaluate companies, their accounts declarations and markets are readily available.
Also, do all of your homework, research and analysis before you buy a stock that is not garnering any type of attention.
One of the most important things for investors to look at is volume, anything less than one million shares per day is not worth touching. It is a pointless task to purchase a stock that is trading 9,000 shares a day because it will be nearly impossible to sell once you are ready to do so.
Stocks need attention to have liquidity, which basically means that for it to sell it must have value. Don’t be stuck with a rising stock that you will be unable to sell later. Don't just thinkof all the lovely profit you'll generate - think about the mechanics of actually being able to realise that profit. After all - so what if you've made $1.20 per share in three months - if you can't actually sell them!
Oh - and in case you forget! DON'T BORROW MONEY FOR INVESTING!!
Posted by Knowledge to Action