If you want to get into penny stock trading, you’ll be glad to hear that it can definitely be a very lucrative money making opportunity for you. At the same time, there’s no denying that penny stocks are a naturally risky investment, which is why it’s critically important to play your cards right.
What are penny stocks? Penny stocks are simply any stocks that are low priced at $5 or less as hare. Oftentimes they are even less than $1. The advantage here is you can collect more shares of a particular stock for a lesser investment.
Here are the top five lessons you need to remember the most when trading penny stocks:
Lesson #1: Never Trade Without A Plan
Trading without a plan is perhaps the biggest newbie mistake of all when it comes to penny stocks. What happens is beginners will often be heavily influenced by rapid price fluctuations and make buying and selling decisions based on information.
Unfortunately, success from penny stock trading cannot come this way. You need to have a solid plan in place that consists of what price you will buy your stock at, what your target is, what your stop loss is, and how much money you are willing to risk losing.
Lesson #2: Focus On The Long Term
Don’t be surprised if you take a loss with your first trade. It’s only natural for beginners and even the pros will take a hit once in a while. No one can predict the future.
But what’s important is that you don’t let a loss on your first few trades discourage you from staying in the game for the long term. You never want to take such a big position that will bankrupt you, and you also want to be sure that you can learn from each trade you make. Focus on the long term vs. the short term.
Lesson #3: Find Balance
As with any career path that you pursue, it’s important to find balance in your life when engaged in penny stock trading. Set time aside for the things you enjoy in life and for friends and family. Eat healthy, read often, have a dedicated morning ritual, and get plenty of physical exercise each week. Long hours of trading back and forth need to be coupled with other important area of your life to find the right balance.
Lesson #4: Never Be Afraid To Take A Loss
This falls in line with Lesson #2. The whole game of penny stock trading involves risk, so if you’re afraid to take a loss even from a relatively small position, this market is not for you.
Lesson #5: Minimize Losses
While you should never be afraid to take a loss, you should also have a strategy in place to minimize them should they indeed occur. The best way to minimize loss on a trade will be to set a stop-loss. This simply means that if price of a stock falls to an important point, your money will be automatically pulled out of the trade before the price falls any further.
What To Remember When Trading Penny Stocks
It’s easy to get absorbed into trading penny stocks, so these are the top lessons that you will want to keep in mind during your penny stock trading journey.