Basic Facts Of Trading Micro Penny Stocks

For amateurs, micro penny stocks can be much like playing the penny slots in the casino-they can cost almost as much as playing larger stocks, if you aren't careful. A micro penny stock will fall into the class of those that have a market capitalization of less than $250 million, but for the common investor, shares are cheap - usually less than $5 each. For those that haven't learned the speculative nature of these cheaper stocks, it's important to realize you can double or triple your money, but you can also lose all of your investment.

Plan an exit strategy before you ever purchase a micro penny stock

You should already be planning when to take profits on an upward trend and a downward trend should mean selling your shares at a certain price, to limit your losses. If you pick higher volume shares, it's easier to liquidate, when you need to, but you shouldn't be greedy. Most of the profitable traders tell you to think of micro penny stocks as a short-term holding, versus a longer-term investment that pays dividends.

Know when they are the hottest, from a performance standpoint

You will find that micro penny stocks are most popular when the major markets are nearing their tops. For investors that want to diversify a portfolio, a micro penny stock that has survived a recession and lasts into the early stages of an economic recovery could outperform the larger shares. In fact, that has been the case since 2000, but keep in mind they are not as widely traded and the SEC doesn't monitor the OTCBB, as closely as it does the major exchanges, like the AMEX and NYSE.

Publicity may boost price more than the fundamentals

Of the biggest gainers in the smaller shares, 7 out of 10 stocks can attribute it to publicity, versus profits or earnings ratios and cash flow. In fact, hyped promotional campaigns make a lot of money for certain investors, but there are plenty of those on the losing end, because they didn't get in early enough or sell, once they reached reasonable profits. Usually, "pump and dump" publicity is short-lived and could be caused by a newsletter recommendation.  You should act on possible buy-outs or amazing product developments. If you are following the advice of a free newsletter, be leery of the "hype" campaigns that contribute to inflated price levels, on shares being publicized.

Beginners should get all the education or advice they can

The best way for beginners to make money could be to subscribe to paid newsletters by penny stock-pickers. You can read books offered by successful day traders, because they will normally trade these smaller shares. Many have written eBooks or produced video tutorials, available on DVDs. Penny stock-picking software can be a helpful tool, but you still need to understand how settings are programmed and tailor programs to meet your investment goals. You don't need to know everything about investing in micro penny stocks, but it helps if you are knowledgeable on the basics of investing in them.