Pennystockresources

Penny Stocks - Turn Your Pennies Into Dollars

We’ve all heard about the investor how bragged about his 100% or1000% return on a stock or about the guy who made it rich byinvesting in small caps, undiscovered stocks that made it big.In theory, it seems to be too easy. Invest in a couple of pennystocks, then sell them when they move up. Unfortunately, it istoo easy. Too easy to lose money unless you know what to lookfor.

First, lets have a look at what types of companies trade on theOTC BB or Pink Sheets.

Stocks that no longer trade over $1 on the Nasdaq

These include companies that fell from grace (Enron). While itis possible that they may see better days in the future, theodds are stacked against them. Its usually best to avoid tradingthese stocks. If you feel that the temptation is too much, waituntil the stock begins to rebound. If you try catching a fallingknife, you will get hurt.

New Start Ups

Every year there are hundreds if not thousands of companies whodecided to go public. Whether they need the money to expandtheir business, or are looking to cash out their equity, its anatural progression for a company with a compelling story, and agreat track record to go public. While many of these companieswill file for an IPO, many others will start off trading on theOTC BB as a penny stock Second, lets look at some tips to help the penny stock traderavoid making costly mistakes.

Due Diligence

Stocks listed on the Pink Sheets don’t have to file annual orquarterly statements. This makes starting your due diligencedifficult. Often, the information is sketchy at best, andtypically, its biased. You should expect a shareholder to saygood things about the company. If the company didn’t havepotential, they wouldn’t be holding it. Or, they might be hopingto unload their shares and hope to talk you into buying.

Stocks listed on the OTC BB file annual and quarterlystatements. This provides some measure of financial success.You’ll find most penny stocks lose money, whether throughmanagerial incompetence, or research and development. The key isto identify the companies whose management has a record ofconsistently making money, or at the very least, delivering ontheir business plan, and decreasing expenses.

Penny Stock Newsletters

Being a writer for The Leading Source (http://www.1source4stocks.com) puts me in a biased position when speaking to penny stocknewsletters. Here’s what I can tell you: be careful! Check thedisclaimer for the amount the newsletter is being paid to carrythe profile. Are they being paid in cash or in shares? You’lllikely find a corelation between the number of shares they arebeing paid, and the rating on the hype meter. Does that meanthat you should avoid any stock where the company is paying IRprofessionals in shares? No. Just keep in mind that they areselling a story, and if they sell the story to othershareholders, they will gain. This is not a problem if you getin early, but could be a problem if you aren’t able to jump inright away.

Take a look at the track record of the newsletter. Have theyprofiled winners? Do they state the facts, or state the hype? Dothey also offer unpaid stock profiles? If they do, you’ll likelyfind that they do their own research in all companies, and arelooking to ensure that they aren’t passing a weak stock your wayjust to pay the bills.

If a company is paying an IR professional money to profile astock to its subscribers, should you avoid it? Of course not.Think of the payment as advertising. They are promoting thecompany, and trying to get exposure. Like any company, the onlyway to get exposure is through some method of advertising. Sodont dismiss a paid profile as hype. Keep it in the back of yourmind while you are reading the profile, but pay attention to theprofile. You may find a diamond in the rough that no one hasdiscovered.

Volume

If you want to make money, you have to be able to buy and sellenough shares to lock in your profit, or protect your capital.If ABC company’s daily volume is only 500 shares a day, it maytake you several days to accumulate a position worth taking. Ifthere is bad news, who is going to buy your shares? If thevolume is low, stay away. Its not worth it. If you feel thatstrongly about owning the company, consider contacting thecompany directly and working out a deal.

Buy Results, Not the Story

If you buy the hype, odds are, you will end up being the lastone to own the shares, while everyone else has sold off theirposition. Look at a company, take a look at what their businessplan was, and confirm if they have followed through on thatplan. Were they successful? Did they bring a product to marketon time? Did the company follow through on its acquisitionstrategy in the manner they set out? The hype might get you aquick pop, however, unless you are watching your trading screenevery second of the trading day, you will miss out.

Size matters

There are thousands upon thousands of penny stocks. The size ofyour position should not be anymore than $2000 - $3000. Whilethis may not seem like much, keep in mind that its not unusualfor a $0.10 company to drop to $0.05. That’s a 50% loss. If yourposition is $10 000, a 50% haircut leaves you with only $5000.Keep your losses to a minimum. If the company has done well, andyou are up, either take your profits off the table, or add toyour position, and be sure to reset your stop loss so as toprotect your previous profits. Capital preservation is the keyto successful trading.

Have a plan before you buy. What are your reasons for buying.What is your exit strategy? Where is your stop loss? At whatpoint will you take your profit? Write down these answers beforeyou place that buy order.

Penny stock investing can be profitable. Remember, you aretaking larger risks than you would if you were purchasing sharesin a bank stock. That risk can be rewarded with returns that youcant get with a bank stock, or, it will be met with a large lossand a bad taste in your mouth for investing in penny stocks.

Do your homework, don’t believe the hype, and protect yourcapital.

Note: The Leading Source provides its subscribers with both paidand unpaid profiles. Follow those tips and you will watch yourpennies grow into dollars.

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