Many believe that the penny shares market is one of the most exciting and rewarding experiences one can have as an investor, should he or she be brave enough to get into it. The thing with these stocks that trade lower than $5 for every share is that trading them is very speculative. A lot of people in one day gain a lot of money and lose more after just a few days in the mainstream stock markets. With the penny stock market, huge gains and losses are experienced within hours. Transactions are done in a very rapid pace, so profit dwindles and explode speedily as well.
With the very speculative and fast-paced nature of the penny stock market, it is imperative for anyone getting in to know how to do business correctly. The losses to be experienced when investing in this kind of stock may be small when looked at per share, but when accumulated, can mean the loss of half, or even an entire initial investment amount. Thus, caution should be exercised. The investor has to have precise rules or guidelines when he or she is entering a trade. He or she has to know what will make him or her want to enter one. Even if he or she has a broker to execute a trade on his or her behalf, the thing is, there has to be a specific reason a financial expert, adviser, consultant or broker will enter a trade.
'Just because,' 'because it feels right' or 'because the timing is good' just don't cut it. There has to be particular reasons, like a fundamental evaluation or a particular positive technical indicator. Acting on a rumor or speculation is not wise, but it can be a start for the investor to dig further and see if the talk has something to back it up. If some points of an investor's criteria are not met, than entering a trade is not advised at all.
If specific criteria are the most important when entering a trade, timing is the most essential factor when exiting a trade in penny shares. At what point should a profit or loss be taken? Losses should be cut when they are piling up uncontrollably, but at the same time, profits may not last long. A number of investors try to chase a stock and add to their position, hoping that their losses will turn to gains. This is rarely, if at all, the case in penny stocks and those who do it end up as losers. The stock should be exited from, and can be re-entered when the buy signal is put out again by the system.
As with 'regular' stocks, it is better to invest in a diverse array of penny shares. Putting 15 percent of an investor's money in one company is enough, and going higher than that would already be inviting tragedy. A lot of people are tempted to put their 'eggs' (money) in one 'basket' (company), as the shares are cheap and there's a sense of security in seeing all of one's investments in one solid block. But of course, if that one company where an investor puts all of his or her money in collapses because of lack of funding (a common occurrence in companies offering penny stocks), all of the investor's money also goes up to smoke.
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Trying to find which penny shares to watch can be confusing for a newbie. Find a reputable broker with a proven winning record to find out which penny shares to watch and follow his recommendations.
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