First of all you may be asking yourself what is the difference between penny stock investing and penny stock trading. If you decide to invest in a stock, you are generally looking at a long-term investment. You pick a company which you believe has good fundamentals and prospects for growth. You buy the stock at what you believe to be a good price and then you hang on to it hoping that the company will grow and your stock along with it. The disadvantage of this method of investing is that your stock may experience lots of downs as well as ups and you need to have the kind of temperament to sit these out.
For example, let’s look at Apple Computer (stock symbol AAPL). Apple Computer (stock symbol AAPL) went public in January 1984 at $3.83, but by mid-August it had declined by nearly 50% to $1.81, and it wasn’t until 1986 that AAPL actually went above it’s IPO (Initial Public Offering) price. So if you had bought shares at the IPO price and decided to hang on and not sell, this decision would have resulted in some “dead” money for about twenty-four months. However, this would have been one of the most awesome penny stocks as the stock today is trading at over $300! Of the many penny stocks you could have chosen to watch over the years, AAPL turned out to be one of the best stocks ever! This is how penny stock fortunes are made!
Penny Stock Trading
Trading, on the other hand, is essentially a short-term endeavor. You buy the penny stock at what you believe to be a good price, and when it rises to what you deem to be an acceptable level of profit you sell your penny shares. The time frame will vary depending on what is happening to the penny stock. It may be as short as a day or it may be as long as several months. Anyone choosing to trade AAPL (as opposed to investing in it) would have been in and out of the stock many times over the years. Whether you would have made more money doing it this way would depend solely on your expertise in judging when to buy and when to sell.
I firmly believe that people fall into two classes of investors – those with the temperament for long-term investment and those with the temperament for shorter-term trading. Only you can decide which method is better for you. You could also do both – divide your investment/trading capital in half and use one half for long-term investing and the other half for short-term trading.
Why Invest/Trade in Penny Stocks?
Penny stocks are an extremely attractive investment/trading option for many people because they allow investors to purchase a HUGE number of shares at a very low price. The low price and high number of shares means the potential for amazing gains if the stock performs well.
What About the Risks?
The risks involved with trading penny stocks are low because penny stocks are inexpensive. We aren’t talking about making investments/trades of thousands of dollars. If you spend $100 on a penny stock and your stock pick soars, you can double your initial investment – a return of 100%. However, if your stock goes the wrong way and the price drops 50% you have only lost $50.
How to Buy Penny Stocks
How much you will make depends on you and your adeptness at knowing which are the best stocks to buy and choosing the truly hot penny stocks. That‘s why I believe that signing up with a penny stock expert is the way to go. Find a good one and rely on his/her stock picks. Once you have your expert in place, my advice is to start slowly with a small investment. Practice sound money management by only investing 5% of your total capital in one penny stock. Be disciplined, don’t let your emotions control your trading, and, at the end of day, you will do well. NEVER look at a penny stock and think this stock is bound to double in price – I’ll bet the house on it! Trust me, I speak from experience, it’s the quickest way to go broke!
Practice First
Instead of jumping right in with a big splash, you can choose to put a toe in the water first by paper trading your penny stock tips. Pretend you are buying the penny stock picked by your “guru.” Write the name of the stock down, the date on which you bought it and it’s price on a piece of paper and keep a record of how it does. When trading penny stocks online, most on-line brokers will actually let you set up a “pretend” paper trading account with “pretend” money so you can test how you will do when you eventually invest for real. This is a really good way to test the stock picks of any investment advisor you sign up with as there absolutely NO RISK involved.
Why it’s Sometimes Not Easy to Find the Best Penny Stocks to Buy
The main reason to buy penny stocks is that they are so inexpensive. However, one drawback is that there is often less information available on these companies than, for example, the companies comprising the Dow Jones Industrial Index. In fact, you will find that some of these companies simply have no information available at all. So the advantage is that these penny shares are extremely cheap but the disadvantage is that there may be little concrete information on which to base your buying decision. This is where an investment advisor can help you and your bank account.
How does Nathan Gold find the Top Penny Stocks?
Nathan Gold is the creator of the The Penny Stock Egghead advisory service. This service generates profits on a consistent basis. Nathan looked at the spikes shown on the stock charts of penny stocks and discovered that, although these spikes might appear to be completely random, they are not. His research revealed that about 70% of the time these spikes are the result of promotions by the company. He has developed a method to find out which penny stocks to buy because they are about to rise in price because of such promotions. I have seen scans of his tax returns and his brokerage records, and they are very impressive. He is also regarded as an expert in his field and has a sizable following of people enthusiastic about his service. This provides his subscribers with a huge advantage and significantly lowers their trading risk. After all, what you are looking for are the really good penny stocks. If you would like to find out more about Nathan Gold, then click here.