Thinking of trading penny stocks to earn quick returns? Then, be patient and learn the trading techniques first before you enter this uncertain world. This is because there is no use of crying over split milk and hence, you should train yourself well before trading in high risk penny stocks. Penny stocks show tremendous fluctuations which are very difficult to anticipate, or track, at times.
Penny stocks are extremely volatile on an intra-day basis. They can rise and fall too sharply as compared to their larger peers or the broader markets. Lack of liquidity is the main problem in penny stocks. The number of outstanding shares among the shareholders are very less, and so are the number of shareholders. So, for a person who has been stuck in such stocks, selling it can be very difficult in times of a bad market. This is because no person is willing to buy these shares in a bearish market, even though the valuations are looking attractive as compared to previous valuations. However, this can be an opportunity for those who have sharp reflexes and can off load positions at right levels.
Fast-moving penny stocks will always be a risky play because of the lack of fundamentals and backing of earnings to stock movements or market capitalization of that firm. Many times, not much is known about the promoters and management of these firms which makes investing/trading a dicey proposition. Movements in such stocks can be due to heavy buying/selling from some domestic players or brokerage firms.
Making Money in Stocks
Trading vs Investing
While dealing in penny stocks, you should be very clear whether you wish to trade or invest. Trading is a short-term play just to take advantage of an ongoing rally in stocks, or positive market sentiment. On the other hand, investments are done for few months to several years. Generally, trading is done more in case of penny stocks due to lack of fundamentals.
Decide Entry and Exit Points
Deciding entry and exit points for yourself is a useful technique for trading in these kind of stocks. A study of technical charts in detail, along with day-to-day tracking of stocks can help you know supports and resistances. You should also keep a tab on stock market news which can have a significant impact on the price of such stocks.
For trading penny stocks, having stop losses at right levels is imperative. Stop losses at strong supports help you to get out of stocks before they start hitting new lows. Also, a trailing stop loss is useful to lock profits before the stock starts its downward trend.
Volume analysis helps a lot when trading penny stocks. Increasing volumes can be a signal of rising trader interest in penny stocks, and this helps you to form strategies and implement them for your profits.
Best Penny Stocks
Here are the best penny stocks which you can track closely:
- Arena Pharmaceuticals Inc
- Advaxis Inc
- Payment Data Systems Inc
- YRC Worldwide
- LGL group
- USA Technologies Inc
- Taseko Mines Limited
- American Capital
This information on fast-moving penny stocks must have helped you understand the difficulties, as well as opportunities, in such a trading. Now, it is up to you to decide whether you can risk your money in some of the best penny stocks, or go for the safer large cap stocks. Think smartly and then take an appropriate decision. All the best!
DISCLAIMER: This article is just for reference purposes and does not recommend any stock market transactions.