Penny stocks tend to trade on low volume making the price both volatile and easy to manipulate. In addition, when buying penny stocks, the information you’re relying on is incomplete at best, nonexistent at worse, making fundamental decisions difficult to ferret out before the events actually unfold. Worst of all is the fact that many penny stock corporations are nothing more than scams or shell companies for other less desirable companies to merge with and unload their shoddy assets. Penny stocks carry enough inherent risk that you don’t need to add any more with bad trading practices.
Limit Your Risk Per Trade
Even the most aggressive stock traders don’t think you should risk more than a few percent of your capital on any given trade. If you’re looking for a wild ride on a stock because you believe your longer term direction will be correct then you can’t invest more than a few percent of your total stock trading portfolio. Otherwise you could lose a lot on one trade gone bad. If you’re not willing to ride the ride you can invest a lot on one trade if you cut your losses as soon as the trade turns against you. If you’re going to go this route though you must set a stop loss. Human nature will be to hold the trade a little longer because in case it might turn around but this how entire portfolios get wiped out quickly. Don’t let one bad penny stock undo years of hard work.
Take Profits
The other success key is to take profits and enjoy the free trades. When you have a winning penny stock, take enough profit from the trade so the whole trade is a win. Then just keep moving up the stop loss as the stock rises. That way you will never lose so much as to take away from your initial win and at the same let your winning stock ride for maximum profits. That is truly a trading penny stocks for dummies strategy at its best, even if you’re looking for gold mining penny stocks.
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