By Julia Ferrara
Penny stock tips are certainly not in short supply. There are hundreds of resources to learn about these type of equities and it can often get overwhelming. Small companies that have a market capital less than $200 million and have shares that fall below the $5 range are usually referred to as penny stocks. These are companies that are either in the starting-up phase or are in the process of going bankrupt and the stock is rapidly becoming devalued. If you know the secrets in trading low cost equities then it can be a very lucrative undertaking for you.
Here are the two most important penny stock tips that you must know to become a profitable trader:
1. Take advantage of others' knowledge. In order to properly analyze and forecast price fluctuations you should have in-depth knowledge of the companies you invest in. But due to the relatively small size of the companies that offer penny stocks, information can be pretty scarce, this is where the expertise of other people who invested in the company will be invaluable. Gather penny stock tips from them to help you out.
There are many lists and email notifications from analysts and pickers that will alert you when they have identified a hot trade. When trading these companies you must buy and sell very fast. The price fluctuations can be wild in a short time frame. Remember profits can be made if you trade in a high enough volume with movements of a few pennies in either direction. You need to be in the know and reading about a stock a day or two after the movement is often too late to get into the action and grab a profit.
2. Initially trade in just a single type of shares. This is a fact that many of the more experienced traders hide from the newbie. The major factors that dictate market prices of stocks are industry news and hype. Major news regarding the industry can greatly affect how high or low the prices will fluctuate, so you need to monitor industry news carefully. Hype also has the same effect to the prices; changes in prices can be abrupt. Prices can change drastically overnight.
Focus on one market so you can be better prepared to trade when news hits an industry. Focus on one segment such as technology or medical and learn what indicators and news to look for. Don't spread yourself too thin by looking for picks across thousands of penny stocks.
These two factors are the ones that you should be most aware of. To avoid getting sucked into investing because of the hype is to first start with single company shares. This is so you can concentrate on monitoring the company you invested in and to keep your eyes open for any industry news that can impact that company. This is a good training ground for you to experience firsthand how the market news and hype affects penny stocks; these are the best penny stock tips you can get your hands on.
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