Best Penny Stocks – How To Trade Penny Stocks

You must have heard how penny stocks can be very cheap for investments and also how risky it is for novices and even experts to trade in this kind of investment. While it has always been reported that penny stocks are risky, many people still invest in it. The reason for this is because it keeps on having violent fluctuations in the share trade which has made a few numbers of people succeed just playing with penny stocks. Just like other forms of investments, trading with penny stocks is risky but the risks involved with this are just too great compared to other investments such as stocks, bonds, mutual funds and so on.

Trading With Penny Stocks
To buy penny stocks is just like buying the share of stocks with your everyday, normal stockholder but the prices of the share trading are only about 5 dollars or less that has market caps under $200 million. Penny stocks are often referred to as slot machines of the equity market because it is just like a gamble whether or not your investments are going to hit that high. This does not mean that it is a dangerous form of investment. You just have to place your money on the right knowledge, advanced and experienced investor by following certain guidelines.
How To Pick And Trade

• Invest money into the best penny stocks only within your means. Just because they are cheaper does not mean it is okay to invest a lot of it. They are considered high risk compared to larger stocks if they are not traded wisely. Learn to set aside savings that will last for at least 3 months in case something goes wrong with your investment.

• Try to understand why they are considered as very dangerous investment. Since it has a violent fluctuation of the prices, it is indeed risky and sometimes the stocks in this trade are manipulated by the scam artists.

• If you have no prior knowledge of penny stocks, try to get at least one year of experience with large and mid cap stocks first. By the time you become adept to reading the income statement, cash flow statement and balance sheet you will have a glimpse the following year on how to trade with penny stocks.

• Take time to learn about particular aspects of the penny stocks which makes them dangerous and potentially lucrative of your portfolio. This means that you need to understand its mechanics behind the market capitalization, share structure and money flow. You should also understand its purpose for the common existence of loss of investment, dilution and scams that are linked with penny stocks.

• Know which particular stocks that you need to reject.

• Look for the red flags which are the common attributes of the companies that are operating for the purpose of raising money through stock dilution or running scam.

You should also look for the best penny stocks companies that have generated cash consistently and has grown their own free cash flow in the course of time. It is wise to avoid companies that have heavy loads of debts.