1. Do Your Research
When it comes to learning to trade penny stocks online, do your research. Know everything you can about trading penny stocks and how they work. The penny stock trading site you choose as a platform will also have a significant impact on your trading progress.
You don’t want to invest your money into something that you know nothing about. This is only going to make it harder for you to have success in trading. Even when you think you know everything there is about trading penny stocks online, learn more. You can never know too much about trading penny stocks and the more you know the better. Invest in your education. Find somebody who has mastered the trade and learn from them.
2. Coming To Terms With The Losses
Trading penny stocks online can be a very tricky process, so you need to know and accept the fact that from time to time, you will lose. See which stocks have a low success rate and have a tendency to fail and cut them. Online penny stock trading is all about timing. Be wary of the stock movements and don’t be afraid to cut your losses. One of the worst things you can do is hold on to a stock when it is underperforming in the hope it will turn around. If you are starting small, this alone could wipe out your funds. You will get a good idea of the type of stocks that aren’t worth your time…with practice and experience.
3. Look At The Charts
This will help you identify the lemons. Do your research and look at the charts. Learn to recognize the “shell companies”. Don’t just jump straight in as this is simply gambling. Not only is this dangerous, it is also very stupid.
Going into penny stock trading online completely blind is a great way to lose it all and fail. You want to know everything you can about the companies and who has made it to the top. Look at their statistics. How many times have the shares rallied? Is this particular stock unusually volatile? Look at the company news and decide for yourself whether it is truthful and important. Often announcements are made in an attempt to inflate the price of the stock.
4. Trade Stocks Quickly
You never want to stay in a stock for too long. Stay in just long enough to make a profit, even if that profit is small. A large mistake traders make is hanging on to their stock for too long, expecting it to continue to rise. Penny stocks are extremely volatile and you should be looking to sell your stock if it has gained some upwards momentum, as this rarely lasts long.
Never stay in and think that you will make a higher profit, this gives you a higher chance of the stock dropping and you may lose everything you gained. Dabble in different stocks. You don’t want your position in a stock to make up too large a portion of your portfolio.
When it comes to trading penny stock online you should think about the liquidity of a stock. If the stock is frequently traded it is a promising sign. This means that when it is time for you to sell (or buy) you will be able trade with ease.
5. Don’t Chase ‘Hot Tips’
“Hot Tips” are tips that other people will give you about the companies that they have made a really good profit with. You never want to base trading penny stocks online off of the stocks that others have success in because you might not. This just means that they were in the right place at the right time. Of course, you can still research that company and see their statistics and how well they have done. If you like it, then invest.
6. Look at The P/E Ratios
The Price Earnings Ratio can be useful when compared to the P/E ratio of the overall market. This will help you determine if you are looking at a growth stock.
In general, if the P/E ratio is high is implies that the company may have a high expected growth rate. Often though, if you are buying when the P/E ratio is already quite high, the future growth is actually already reflected in the current price of the stock, This ties in with the efficient market hypothesis which states that it is difficult to beat the market because market efficiency will cause the share price to reflect all the information which is publicly available.
You can compare the P/E ratio to other penny stocks from the same industry to help determine if the stock is under or overpriced. Of course, you shouldn’t be solely looking at the P/E ratio. You should also look at numerous figures to better understand the state of the company you are examining. The P/E ratio can be quite a handy tool when penny stock trading online.
The below video helps explain the Price Earnings Ratio:
7. Discover A Strategy That Works….And Stick With It!
Once you find a strategy and trading site that works for you and is making you some healthy gains, stick with it. Find out what works and repeat the process. If you make some losses, take note, learn from your errors and come back with a new strategy. Switching from strategy to strategy can seriously damper your profits. You won’t have the time to correct your wrong moves. Spend a little bit of time to find your groove, then keep it for the long run, this will benefit you the most.
8. Stay Open Minded
Being open minded in online penny stock trading is a major plus to upping your profit. Most people tend to go with companies that are both bigger and well-known in the penny stock business. This is a good thing, but also limits the profits you could make. Don’t be afraid to go for smaller, lesser known companies.
9. Don’t Listen To The Success Stories
Another big “Don’t” in the online penny stock trading business is listening to everyone else’s success story. You listen to these stories and take away the high pay packets these traders took home. You then try and push trades that you shouldn’t and end up making a considerable loss. If it doesn’t feel right, it probably isn’t. What worked for them may not necessarily work for you. You need to do your own research and get your own groove and find out what works for you personally.
When it comes to trading penny stocks, everybody has a different approach. You need to listen to solid facts and look into the company’s fundamentals rather than listen to someone who got lucky.
10. Be Wary of The Penny Stock Company Management
When it comes to Penny Stock companies, they will tell you anything they can to get you to invest with them. Don’t believe what you hear straight from the companies. They are often trying to raise capital to stay in business. They are not looking out for you or trying to help you to make a profit with them. No business is going to do that. Be wary of the email promotions as they can be an effort to sell hype and inflate the share price.
If you'd like to sharpen your skills in trading and market analysis, it pays to be in the company of experts who are willing to impart their knowledge. Jason Bond offers trading programs that will help you learn the business and help you find the stocks worth investing in. Learn more here.