The 4 Rules Of Trading Penny Stocks

One of the most common emails we get here at DamnGoodPennyPicks.com are from people wondering about the do’s and don’ts of trading the best penny stocks. While alot can be said on the subject, we distilled our take on the matter into Four Rules which follow:

Penny Stocks: The Four Rules of Trading

1. Never Risk More Than You Can Afford To Lose

If you are trading penny stocks with money you need to pay your rent or buy milk for your kids or make you car payment, stop what you are doing and come back to penny stocks when you have extra cash that will not hurt you if you happen to lose it. People do make money trading penny stocks. But people also have trades go against them. Make sure the money you are using to trade cheap stocks isn’t money that is going to hurt you badly if you happen to lose it. Please.

2. Don’t Fall In Love With Any One Situation

So, you research a stock or get a hot tip and form an idea regarding a stock and…you stick to your opinion ONLY AS LONG AS IT’S PROFITABLE. If you’re proven wrong, get out and wait for the next opportunity. There are always stocks that are performing now. So if your “winner” turns out to be otherwise, don’t frown, don’t fret, don’t double up, just move on. If you have any profits in your stock than multiply this advice by 10. Your reason or opinion or where you think a “winner” is going means nothing. It’s the price of the stock here and now that matters. If it isn’t what you thought it would be, get out.

3. Stay Alert, Especially On Fast Moving Stocks

This may sound obvious but so many people rack up losses disregarding this rule. Watch what you are doing. Never try to fit trades into your schedule when a stock is on the move. If you know you have to be away from your computer for a long while, consider exiting your positions and diving back in when you can watch your screen. If you’re trading full time try not to schedule anything during market hours. Also, always recheck your orders to make sure you’ve entered them correctly. On some cheap stocks you’d be surprised how easy it is to add an extra zero. Once again, STAY ALERT. It’s your money you’re playing with.

4. You Can Never Go Poor Taking Your Profits

Sure, stocks run. Sometimes a lot more than where you thought they would go. So what? They also swing down too. If you’re comfortably ahead in a given situation consider selling and booking your profits. Even if they are small. Racking up lots of small profits in a row will eventually result in BIG gains. No one ever went poor taking profits.

And that’s about it.

At DamnGoodPennyPicks.com we have been trading penny stocks for a while and are always available to answer any of your questions. You can reach us via email at info@damngoodpennypicks.com or with our contact form on our website at http://www.damngoodpennypicks.com

All the best as you trade penny stocks,

Jeff Mirkin

How Stocks Trade?

By Investopedia Staff   A A A

Filed Under: Beginning Investor, Capital Market Beginning Investor, Capital Market

Investopedia: Are you looking for more information on currency trading? Try our Forex Walkthrough, it goes from beginner to advanced.

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual, composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers' market linking buyers and sellers.

Before we go on, we should distinguish between the primary market and the secondary market. The primary market is where securities are created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies. The secondary market is what people are referring to when they talk about the stock market. It is important to understand that the trading of a company's stock does not directly involve that company.

The New York Stock Exchange
The most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal-mart, is the market of choice for the largest companies in America.

The trading floor of the NYSE

The NYSE is the first type of exchange (as we referred to above), where much of the trading is done face-to-face on a trading floor. This is also referred to as a listed exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell. Once a trade has been made, the details are sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is human contact in this process, don't think that the NYSE is still in the stone age: computers play a huge role in the process.



The Nasdaq
The second type of exchange is the virtual sort called an over-the-counter (OTC) market, of which the Nasdaq is the most popular. These markets have no central location or floor brokers whatsoever. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

The Nasdaq market site in Times Square

On the Nasdaq brokerages act as market makers for various stocks. A market maker provides continuous bid and ask prices within a prescribed percentage spread for shares for which they are designated to make a market. They may match up buyers and sellers directly but usually they will maintain an inventory of shares to meet demands of investors.

Other Exchanges
The third largest exchange in the U.S. is the American Stock Exchange (AMEX). The AMEX used to be an alternative to the NYSE, but that role has since been filled by the Nasdaq. In fact, the National Association of Securities Dealers (NASD), which is the parent of Nasdaq, bought the AMEX in 1998. Almost all trading now on the AMEX is in small-cap stocks and derivatives.

There are many stock exchanges located in just about every country around the world. American markets are undoubtedly the largest, but they still represent only a fraction of total investment around the globe. The two other main financial hubs are London, home of the London Stock Exchange, and Hong Kong, home of the Hong Kong Stock Exchange. The last place worth mentioning is the over-the-counter bulletin board (OTCBB). The Nasdaq is an over-the-counter market, but the term commonly refers to small public companies that don't meet the listing requirements of any of the regulated markets, including the Nasdaq. The OTCBB is home to penny stocks because there is little to no regulation. This makes investing in an OTCBB stock very risky.

Penny Pick Finders

ABOUT PENNY STOCKS

Penny stocks are usually considered anything trading below $5.00, usually outside of the major market exchanges. They will often trade over the counter through the OTCBB and Pink Sheet markets. Many of the companies are not listed on the TSX or NYSE because they are too small or new and do not meet some requirements for listing. These types of stocks are generally considered to be highly speculative and high risk. Even with the potential risks, many believe that penny stocks offer the greatest potential return on your short or long-term investment. Because you are able to buy these stocks at such a low price there is potential to make massive gains in a very short time frame. Of course, there's also the potential for a penny stock to lose all of its profits just as easily. We'd encourage you to read our Legal Disclaimer page for more information regarding the risks involved.
Always take the time to do sound research on all penny stocks you are considering investing in.

BENEFITS OF PENNY STOCKS

Why is there such an interest in Penny Stocks? It's pretty simple. Ask yourself, how often does a blue chip company like Coca Cola or General Electric go up over 200% or more in a few trading days? Never. Penny Stocks have enough volatility to go up as high as 500% in a matter of days. In our opinion (even weighing the risks), penny stocks offer the greatest chance of making a lot of money in a very short amount of time. Knowing when to get in early enough and which penny stocks to choose from can be the challenging part.
Let Penny Pick Finders do the legwork for you. We pull from all of our resources to help you find your profit potential!

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The Penny Stock Egghead

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The math whiz continues…

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See… it really takes a special penny stock to catch my eye. And even then, only the most remarkable and ‘primed-to-blow’ penny stocks earn coveted pick-of-the-week status.

When someone sends you anywhere from three to dozens of picks a week… you have to place and monitor all those trades. That can quickly gobble up your free time… not to mention all those trading fees.

Worse yet…

How can anyone be pointing you to only “the best of the best”, when they insist on recommending the next big thing every single day? You don’t need spidey-senses to realize, in that scenario, something doesn’t smell right.

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