By following these rules you will give yourself a good chance to make BIG profits in penny stocks.
1. Focus only on penny stocks that have actual earnings. Penny stocks are not lotto tickets, don’t speculate in them like they are, its a sure fire way to lose money fast.
2. Don’t buy penny stocks based on rumors, tips and free penny stock “newsletters”. They are almost guaranteed to be “pump and dump” schemes. Most of these newsletters have a conflict of interest. They buy up shares then tout them to their readers who buy them and drive up the price. Then the newsletter’s owners sell out at a profit and leave you holding the bag.
3. Don’t fall in love with a stock. This rule applies to investing in general. If you have a stock you up 50% or more, sell at least half your position, this way you lock in at the very least a break even trade. Then let the rest ride for the truly big gains.
4. Don’t even think about trying to short a penny stock. Remember there is no upper limit to the amount of money you can lose doing this.
5. Only buy penny stocks with volume so you can get out when you want to. You want to see volume of 100,000 shares or more traded per day. An illiquid penny stock can see you giving up a large part of your gains on the bid/ask spread.
6. You want to buy penny stocks(or any stock for that matter) that have earnings breakouts. Look for stocks that are breaking out to new 52 week highs. You need to buy stocks that are breaking out because of an increase in earnings not necessarily just a new 52 week high. The new high just might be because of a pump and dump scheme. VERIFY that the company is increasing EARNINGS, this cannot be stressed enough!
7. Keep your position size small. Since penny stocks are so speculative, keep any position no more than 5% of your account. That way if any one of them go south in a hurry it will not devastate your account.
8. Most important, find yourself a reputable penny stock newsletter. It is very difficult for a non professional to take the time to do the amount of research it is needed to find the few “diamonds in the rough”. A Penny Stock Newsletter that I can recommend is: Microcap Millionaires
Please see my reviews on recommended Stock Picking Service Newsletters:
Dan Zanger – Chartpattern.com Review
-Robert Walsh
