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And set you up for a life time of casual day trading. But Reality Bites But sadly, making an incorrect penny stock pick seems to come easier than choosing the next Microsoft or Google. I like to console myself with the thought that if it were easy, everybody would be doing it. And then where would we be? Let’s face it, penny stock trading is not for the faint of heart. And while clicking a button and making money on a trade is not hard physical labor, making the correct penny stock pick is not a cinch. My primary method of making profitable picks is to first try to eliminate the non-players. Are trade strategies and stock research important? Read about my $4,242.93 mistake before you answer that. These are the stocks that I would never touch:
Most of the penny stock companies that can fit in any one of the above categories are either scams or operate in such a way to scare potential investors away from their stock. Noneof these would be a good candidate for a profitable penny stock pick. The one exception may be the companies that lack cash flow, but I don’t have the patience to wait around until they figure out how to make money. After all, who wants to invest in a losing company? The OTCBB and Pinksheet exchanges are packed with questionable companies. Do your homework before buying into one of them. All of this makes me think long and hard about the risks involved in stock trading and how I can make the best penny stock pick. I start by first identifying and understanding the risks involved in this business and how these risks can impact the share prices of my trades. If you ignore penny stock risks, or play the penny stock trading game blindly, you could lose your shirt, and maybe even your pants. Don’t go around naked. Get the facts. I’d rather see you in something like an Armani suit. You are about to learn a few things about penny stock trading that most investment websites conveniently forget to mention.
Whenever you expect big rewards, you have to recognize these potential rewards come at a price. That price is RISK. The key to success in this risky environment is to limit your losses and know the game you play. If you haven’t done so already, take a look at my Penny Stock Research page for additional ideas on this subject.
So, What Are The Risks?
Based upon my experience, dilution, reverse splits, reverse mergers, market maker manipulation, and bad news are the predominant risks you will encounter in your penny stock trading business. Consider these risks the next time you make a penny stock pick. Dilution kills a penny stock’s share price because of the laws of supply and demand. Click here to read my analysis of this dreaded subject.
Reverse splits can be the death knell to your investment. Trust me on this one. I learned the hard way. Read about my painful experience with reverse splits here.
Reverse mergers are not the end of the world, but they can spell disaster in some cases. It’s better to be informed. Read my take on reverse mergers here. Read my personal take on reverse mergers here.
Market maker manipulation is frustrating, but there’s not a lot you can do about it. The important thing is that you recognize how market makers can impact your trades. I have a first hand story about market maker manipulation that you can read here. Naked short selling is a technique of selling a stock short with no prior arrangement for borrowing the shares to sell. This creates a dilutive affect on the stock and significantly depresses share prices. Click here to read more about this devastating practice.
Good news may spread quickly, but bad news spreads like wildfire. Bad news loves to break during pre or after market hours, leaving you hanging out to dry. There’s not a lot you can do to protect yourself against bad news, other than possibly anticipate bad news based on market sentiment or your research. Click here to read my take on the bad news bears.
Risk and More Risk The five areas of penny stock risks I discuss above may just scratch the surface. There are simply too many variables to possibly cover every contingency. While we enjoy some phenomenal returns in some of our trades, the truth is, some of our trades will go south in a hurry on the slightest provocation. You can't make a perfect penny stock pick everytime you execute a buy order. Knowing that some risks are unavoidable, the best thing you can do is prepare yourself with thorough company research, knowledge of the overall market environment, and a deliberate allocation of your investment funds that is reflective of your risk tolerance levels. I discuss risk tolerance, position sizing, and other investment strategies on my Penny Stock Advice page. Click here to go there now and learn about my 4 rules of penny stock trading. If you’re interested in learning more about finding the hidden gems in the stock market that could make you wealthy, you may want to consider the Doublingstocks trading system. Click Here to learn more about Doublingstocks.
Finding the right stock to trade can make you rich. Click here to go there now. Click here to learn more about how dilution impacts the share price of your penny stock pick.
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