How to turn penny stocks into thousands or millions? We’ve all heard about the investor how bragged about his 100% or 1000% return on a stock or about the guy who made it rich by investing in small caps, undiscovered stocks that made it big. In theory, it seems to be too easy. Invest during a number of penny stocks, then sell them after they move up. Unfortunately, it’s too easy. Too easy to lose money unless you recognize what to seem for.

First, let’s have a glance at what varieties of companies trade on the OTC BB or Pink Sheets.

Stocks that aren’t trade over $1 on the Nasdaq

These include companies that fell from grace (Enron). While it’s possible that they will see better days within the future, the chances are stacked against them. It’s usually best to avoid trading these stocks. If you are feeling that the temptation is just too much, wait until the stock begins to rebound. If you are attempting to catch a falling knife, you’ll get hurt.

New Start Ups

Every year there are hundreds if not thousands of companies who decided to travel public. whether or not they need the cash to expand their business, or are looking to live their equity, its a natural progression for an organization with a compelling story, and a good documentation to travel public. While many of those companies will file for an IPO, many others will commence trading on the OTC BB as an over-the-counter stock.

Second, lets study some tips to assist the over-the-counter stock trader avoid making costly mistakes.

Due Diligence

Stocks listed on the Pink Sheets don’t should file annual or quarterly statements. This makes starting your due diligence difficult. Often, the data is sketchy at the best, and typically, its biased. you must expect a shareholder to mention treats about the corporate. If the corporate didn’t have potential, they wouldn’t be holding it. Or they may be hoping to unload their shares and hope to speak you into buying.

Stocks listed on the OTC BB file annual and quarterly statements. This provides some measure of monetary success. You’ll find most penny stocks lose money, whether through managerial incompetence, or research and development. The secrets to spot the businesses whose management features a record of consistently making money, or at the very least, delivering on their business plan, and decreasing expenses.

Penny Stock Newsletters

When talking to OTC stock newsletters, here’s what I can tell you be careful! Check the disclaimer for the number the newsletter is being paid to hold the profile. Are they being paid in cash or in shares? You’ll likely find a correlation between the quantity of shares they’re being paid, and also the rating on the hype meter. Does that mean that you simply should avoid any stock where the corporate is paying IR professionals in shares? No. Just detain mind that they’re selling a story, and if they sell the story to other shareholders, they’re going to gain. this can be not an issue if you get in early but can be an issue if you aren’t able to jump in instantly.

Take a glance at the documentation of the newsletter. Have they profiled winners? Do they state the facts, or state the hype? Do they also offer unpaid stock profiles? If they are doing, you’ll likely find that they are doing their own research all told companies and are looking to confirm that they aren’t passing a weak stock your way just to pay the bills.

If an organization is paying an IR professional money to profile a stock to its subscribers, must you avoid it? after all not. think about the payment as advertising. they’re promoting the corporate and trying to urge exposure. like several company, the sole thanks to get exposure is thru some method of advertising. So don’t dismiss a paid profile as hype. Keep it within the back of your mind while you’re reading the profile but listen to the profile. you will find a diamond within the rough that nobody has discovered.

Volume

If you would like to form money, you have got to be able to buy and sell enough shares to lock in your profit or protect your capital. If ABC company’s daily volume is simply 500 shares every day, it’s going to take you many days to accumulate a footing worth taking. If there’s bad news, who goes to shop for your shares? If the degree is low, stay away. It’s not worthwhile. If you are feeling that strongly about owning the corporate, consider contacting the corporate directly and dealing out a deal.

Buy Results, Not the Story

If you get the hype, odds are, you may find yourself being the last one to have the shares, while everyone else has sold off their position. study a corporation, take a glance at what their business plan was, and ensure if they need followed through on it plan. Were they successful? Did they create a product to promote on time? Did the corporate follow through on its acquisition strategy within the manner they set out? The hype might get you a fast pop, however, unless you’re watching your trading screen every second of the trading day, you may miss out.

Size matters

There are thousands upon thousands of penny stocks. the scale of your position mustn’t be anymore than $2000 – $3000. While this could not appear to be much, confine mind that its common for a $0.10 company to drop to $0.05. That’s a 50% loss. If your position is $10 000, a 50% haircut leaves you with only $5000. Keep your losses to a minimum. If the corporate has done well, and you are up, either take your profits off the table, or augment your position, and make certain to reset your stop loss so on protect your previous profits. Capital preservation is that the key to successful trading.

Have an idea before you purchase. What are your reasons for purchasing? what’s your exit strategy? Where is your stop loss? At what point will you be taking your profit? Write down these answers before you place that buy order.

Penny stock investing will be profitable. Remember, you’re taking larger risks than you’d if you were purchasing shares in an exceedingly bank stock. That risk will be rewarded with returns that you simply can’t get with a bank stock, or, it’ll be met with an oversized loss and a foul taste in your mouth for investing in penny stocks.

Do your homework, don’t believe the hype, and protect your capital.

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