Penny Stock Tip - 2 Tips That Will Get You Started

The best penny stock tip that any beginner trader will get is to be extremely cautious about their short-term - as little as a few hours or a few days at most, in fact - investments. While penny stocks have great possibilities for profits, these also offer great risks for losing the entire capital in the blink of an eye. Here then are a few of the tips to lessen the risks and increase the possibilities for penny stock traders.

First, set your expectations. Microcap shares are issued by companies that are just starting out in the industry, purchased by a shell company or in financial difficulty. In all of these instances, the issuing company may be unable to sustain the momentum of their growth, if there was ever any growth to begin with.

The most sensible penny stock tip we can give is to be realistic about your investment in any microcap company. You should always do your fundamental and technical analyses perhaps even go to the extreme of advanced research before putting down money on any penny stock.

Second, do away with the average volume mindset with microcap shares. Keep in mind that the average volume for penny shares is misleading simply because these are thinly-traded shares subject to the manipulation of insiders to make it appear that trade volumes are high. For example, the ABC stock trades for 1million on day 1 but will have zero trade on day 2 to 7, thus, resulting in a high volume of 200,000 shares traded on average - deceptive, indeed.

Instead, you should look at the consistency of the volume being traded on a daily basis. If it is consistently high, then there must be substance to the trades. Our penny stock tip in this case is to look further into it but always look for your own best interests. Liquidity is always your most important asset, so to speak, when trading in penny shares.

Third, you should have a plan and make sure that it is a good one. When we refer to a plan in trading stocks of any kind, we are talking about an entry and exit plan that outlines when you will buy a certain batch of penny stocks and when you will sell it with the obvious intent of maximizing profits and minimizing losses. Keep this penny stock tip in mind and you should have your portfolio's capital intact and your profits growing.

Let's take an example. If you purchase penny stocks for 10 cents apiece and sell it for 12 cents per share, you have a 20% return on investment. But if you sell it at 8 cents per share, you suffer a 20% loss - repeat this losing trend 4 more times and say goodbye to your capital.

To maximize profits, you can plan to cash in once the price hits 13 cents but immediately opt out when the price plummets to 9 cents apiece. This way, you can minimize your losses while taking a significant part of your capital for investment in other more profitable ventures.

Indeed, you should not listen to any penny stock tip about investing in the Next Big Thing from sources without doing your research, looking at trading volumes and following a plan. Many scammers litter the Internet with the intent of taking your money at your loss.