The following is a guest blog post:
Penny stocks are stocks that are traded for less than $5, and they are known as ‘Penny stocks’ because they can cost as little as a few cents, or a few pennies.
Penny stocks are usually sold by companies who don’t have many real assets as they may not have been trading for very long, or they have recently had some financial difficulties.
Although penny stocks may not be deemed valuable to some, they have helped one trader create the Timothy Sykes Millionaire Challenge, which teaches people how to trade with penny stocks.
Let’s take a look at 3 effective penny stock trading tips that could help you create an income from the stocks that could make you wealthy:
Use Support And Resistance Levels
Some traders try to stay away from any form of technical analysis, but they could be missing out. Use support and resistance levels to help you gain an idea as to how well a specific stock is performing.
Support levels show shares that have fallen, before bouncing up again. If shares repeatedly behave this way, chances are they will behave the same way in the future.
This potentially means that if you buy shares at a low price, you can wait until they have bounced back up again before offering them up for sale.
Resistance levels refer to stock prices that always reach a high point before they fall back down again. The highest price usually creates a bit of concern among traders who may want to stay well away from any stocks that behave this way.
When you’re thinking of buying a penny stock, take a look at its performance over the last 6 months, so you can determine whether the stock peaks and then falls, or falls and then peaks.
Try to opt for stocks that have support levels, and consider selling just before they show any resistance levels.
Use Stop-Loss To Your Advantage
Stop-loss orders are those which help to prevent traders from losing too much money. A stop-loss order involves using a preset method that will sell your penny stocks should the price fall to a specific point below your purchase price.
Unfortunately, you cannot add a stop-loss to every penny stock, which means you may have to keep an eye on the stock and sell it once it has almost reached your purchase price.
Using stop-losses can help to prevent you losing too much money, meaning you could be in with a better chance of making a profit.
Don’t Buy The Same Stock As Everyone Else
There will no doubt be a few ‘Hot stocks’ featured in newspapers and on TV with the words ‘You must buy these penny stocks now!’ emblazoned across them.
These ‘Hot penny stocks’ may seem too good to be true, and you could be tempted to cash in on the profit, but you could be making a mistake. Just think about it, if you have heard about these hot penny stocks, so has everyone else.
If 5,000 people buy hot penny stocks, the price is probably going to fall, making them hard to sell. Stay away from stocks such as these, and you won’t have to sell them at a loss.
Use the above tips to help you trade more effectively, and use penny stocks to your advantage. The tips are not guaranteed to make you rich, but they could help to reduce your losses, and that is never a bad thing.