Penny Stocks - Why So Much Interest Lately?
by: christaylor22@ymail.com on Wed, 24 Mar 2010 at: 4:04 PM Go to: Previous Article Next Article
It seems these days more and more stock investors are getting involved buying penny stocks than ever before. Many investors love the idea of taking a modest amount of money and doubling, tripling or even quadrupling it in a modest amount of time. While returns of this nature happen almost every day in the stock market the amount of people losing money while playing the penny stock market is also on the rise.
Unfortunately, too many individuals jump into a penny stock because it ‘looks good’ and there is momentum only to realize later they’ve been used as the exit for someone else. Ideally any stock trader would prefer to buy a stock before it makes a move and if the volume and momentum hit be taking their exit. The reality is that most people playing in the penny stock arena tend to make impulsive decisions and often times buy a stock after it’s already made a move only to then find themselves holding a stock that then begins to drift downwards as the volume and interest decreases from real market players.
Rather than being part of the momentum crescendo, look for technical price/volume breakout indicators by utilizing a good charting service to help you identify if you should be buying a stock. If you see the volume of a stock beginning to wane, look for your exit, even if it means just breaking even or taking a small loss on the stock. I’ve seen too many people over the years hold on to a stock, penny or otherwise, hoping it makes another move after the volume has died down only to be left holding virtually worthless positions.
Volume can be your best indicator if trading low priced issues. If there’s little volume, that means not a lot of liquidity for you to be able to get out of it if you want or need to. Don’t be fooled into thinking that because you’re easily able to buy a penny stock at the price you want that selling will be just as easy. Penny stocks for the most part can be ‘thinly’ traded, meaning they have little volume in many cases, making it difficult to sell a position at the price you want.
Lastly, if you do get into a penny stock at a good price and it makes the move you were on the look out for don’t be tempted to buy more at a higher price. The idea of ‘averaging up’ can be of little benefit in a penny stock. Be happy with the fact that you were able to get in at a good price and don’t get greedy.
Although trading in penny stocks can be risky the potential rewards are what attract more and more investors each year. The lure of seeing incredible returns in a short time period can be very attractive to even the more seasoned investors. In any case, before venturing into the penny stock market be certain you’ve done your due diligence – beginning with learning how to properly read stock charts.
About the Author
With over 15 years experience in the small cap and micro cap arenas Chris Taylor is often able to predict price trends in smaller issues prior to those moves occurring.
Chris also works closely with the top penny stock picking sites http://www.smallcapgurus.com and http://www.pennystockswhiz.com. His specialty is helping them identify little known firms who shares have the potential to make big moves based on both company developments and market conditions.
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