By Victor Graham
All stocks which are trading below $5 per share are known to be Penny Stocks. Because these prices are that low, these stocks are usually much more volatile that the average stocks, as a result of this most financial advisors and long-term investors will suggest that the average trader should avoid penny stock trading.
Past performance has shown that although some of these stocks may produce spectacular gains in a short period of time, they are also notorious to even completely disappear from the market altogether, at the blink of an eye.
The general belief by most financial advisors is that stocks which are trading at such a low price are usually more likely to lose their listing on the exchange because of the instability of the company financial status. Consequently, most prudent investors will suggest that penny stock trading is very risky to the average person.
Tips For Investing In Penny Stock Trading
Tip # 1: In order to be extremely cautious, the first thing you should do before investing in penny stocks is to carefully check the trade volume history. This is extremely important because you always want to be sure that you can easily get rid of your trade as easily as you got in. As you will agree, regardless of how promising any trade my look, if the volume is thin, you may have a difficult time selling your position.
Tip #2: You need to be aware of fraudulent activities or scams with these companies which are usually smaller than the average company. The penny stock trading arena is known to be affected by more scams than the normal trading industry, mainly because some of these smaller companies are not required to provide transparent financial records. As a result of this, every effort should be made to only invest in companies within the NASDAQ who are all required to provide their financial records.
Tip #3: It is very prudent that together with your getting in a trade plan, you also need to have a getting out of your trading plan, as opposed to simply relying on your emotions. This is critical because experience have shown that it usually may be much more difficult to get rid of your trade when investing in penny stock trading.
Tip #4: Never, never put all your eggs in the same basket! Again this can easily be the symptoms of the highly emotional trader. But you must understand that most unsuccessful traders are those who are victims of emotions, rather than the successful trader who has a solid penny stock trading plan.
You should never place a high percentage of your portfolio in any one trade, regardless of how great the trade may appear to be initially. You must remember the high volatility of penny stocks. Most prudent and successful traders will suggest that you only invest 10% of your portfolio on every trade you get into.
Tip #5: The successful trader is also one with a high degree of discipline, especially when it comes to knowing how much one can lose and should lose on any one trade. Please keep in mind the high degree of volatility which is common in penny stock trading, and as a rule you want to be sure you are in the winners circle, by keeping a close tab on how much you can afford to lose on any one trade.
Tip #6: If you do not understand the functions of any company, or how their financial profitability is enhanced, you are better off to avoid that company, unless you have a successful and professional advisor whom you can trust and depend on. Quite frankly unless you are quite experienced in the market, it usually is very difficult to fully understand most companies product, service and or financial evaluation and possible profit feasibility, in the future.
For more information on penny stock trading please go to Trading Tips 4 Stock Market where you will find the professional assistance you may need.