Making money with penny stocks can be a lot harder than what most people think because there are many technicalities that people have to learn and become comfortable with. There are a number of different types of these stocks and figuring out how to use them to gain as much as you can from them can be a little difficult. Most people make the mistake of falling prey to expert investors who try to convince people to invest in stocks if making a lot of money in a short period is their goal. Investing in penny stocks should be made when you possess the knowledge to clearly understand what they really are, as well as the pros and cons of such an investment.
People usually fear what they do not know. You cannot judge or label something until you get to know it.
First impressions are a perfect example. One person may have preconceived notions about somebody who they don’t know much about. Once they get to know that person, they realize that their first impressions were invariably false.
The same thing applies with penny stocks. Penny stocks get a bad first impression. They are quickly written off. The purpose of this article is to get past that first impression, to really dig deep and see if these bad impressions are warranted or not.
Below are some of the myths that always seem to shadow penny stocks.
Myth #1 “You’ll lose all your money if you trade penny stocks.”
This stems from the belief that trading penny stocks is risky. Actually, any form of investing in stocks will always invariably involve risk. The only way you will lose all your money trading penny stocks is if you don’t bother trying to minimize the risk. The key is to look to MINIMIZE that risk! It’s as simple as that.
For example, starting your own business incurs high risk. Does that stop people from doing it? No. And you know what? The people who succeed in starting their own business are the ones who minimize the risk. They do that by researching on how to successfully start their own business by reading, talking with people and taking action. The same thing applies to penny stocks.
You will not lose all your money by trading penny stocks provided that you minimize your risk by researching, learning, and practicing trading before starting.
Myth #2 “There’s not enough liquidity in penny stocks.”
What do people mean by liquidity? Liquidity simply means having enough volume to easily buy and sell your shares. For example, if a penny stock only has two trades, its liquidity is said to be low. There are not enough traders to buy and sell.
However, if a stock is experiencing huge amounts of trades, thereby indicating the presence of a large number of traders, its liquidity is said to be high because you can easily buy and sell shares.
Looking at an after market report recap of penny stocks will reflect that there is more than enough liquidity in penny stocks.
Myth #3 “It’s easy to make money in penny stocks.”
When it comes to penny stocks, the math looks very appealing. Buy shares at a penny and sell them for two cents. There, you just doubled your money. If it were that easy, people would be millionaires.
The fact of the matter is that trading penny stocks can be very rewarding. However, that reward goes to those who educate themselves and paper trade (practice trading with fake money to gain experience), in other words, goes to those who are willing to pay the price to learn.
That’s precisely the reason why some people are very negative toward penny stocks. They have been attracted to the potential of making money, only to rush in without any sort of training or education and become disillusioned and embittered.
Despite all the stereotypes that seem to follow penny stocks, there’s one aspect that everyone agrees on. Penny stocks involve high risk and high reward. There’s no doubt about that. The key to getting that high reward is to learn how to minimize the high risk. It’s as simple as that. It’s as simple as that.
If you are planning on investment in such stocks, you need to research the current market trends, which means 2011. The most attractive stocks that have really caught fire this year belong to the finance and information technology sectors. When you start trading in such stocks, your success is largely based on how accurately you can predict the movement of the stocks, whether upwards or downwards. However, this comes naturally only to some of us and the rest have to spend a lot of time practicing and developing the confidence to make risky decisions.
However, these stocks are very unpredictable, which is why you have to be very careful because there is always the chance that you can lose everything you’ve earned in a blink of an eye. Moreover, if you are having a hard time figuring out the market for these types of stocks there are plenty of specialized expert brokers who are available to offer their assistance and guidance. They have more insight and the latest information on the market and have the ability to predict the trends in a more efficient manner. However, there is never a guarantee that these brokers will be correct in their predictions because of how volatile the market for penny stocks is. The bottom line is that when dealing with these stocks, you should always aim to invest small amounts to keep your chance of loss at a minimum.