Tips and Tricks to Invest in Penny Stock Trade

How To Avoid Penny Stock Pitfalls?

The Dow Jones Industrial Average jumped above 15,000 for the first time in its history Friday morning, May, 3, 2013. It’s bringing it up more than 120% from its 2009 lows.

The S&P 500 Index closed at an all-time high of 1,600. The major indices jumped 1 percent after an unexpectedly strong April jobs report showed 165,000 new jobs, and the unemployment rate slipped down to 7.5%.

Is this a sign of a bull market coming?

I spoke with Mr. Mazumdar author of the popular book penny stock prophet  and a reputable personal financial planner  on how people should use this opportunity in wealth building. Here is the excerpt of our discussion on penny stock investment.:

Money making through stock selling and buying has never been an easy task. Just take a look at the stock market and the number of companies involved in this activity and you will realize that it takes an investment of a significant nature just to become a stock market trader.

Penny stocks are an easy answer to stock trading making lesser investment and earning quite a good profit. Penny stocks can be slightly risky at times, but if the proper procedures are followed a nominal investment is made with the help of a reliable stock broker, penny stocks can definitely give a good rate on investment.

Always remember that the companies trading for penny stocks have a lower market capitalization; therefore, these companies keep the face value of their share below $1. Penny stock companies do not have a large number of shareholders, as they are small companies.

Due to the lower number of people trading on penny stock companies, the share price of penny stocks see quite a lot of fluctuation at both ends; therefore, this type of investment can be quite risky at times for first time investors. The penny stocks are not very smooth to trade, and the pattern of the buying and selling trends vary. For this reason, the investor needs to be very vigilant while trading.

Due to the lower value of penny stocks, it is easier for traders to buy a large amount of stocks with a lower investment. There is not a lot of information available on penny stock trading that would benefit someone who would want to do the trading himself; hence, finding a good stockbroker is a better option. Another option can be to hire an expert on penny stocks, like the consultants available online.

If purchased correctly, penny stocks are a very quick way of earning profits.

A little knowledge and some informative tips, like those mentioned above, can give you great benefits with a smaller investment. Here is an article by Charles Carmichael on "How to Choose the Best Online Penny Stock Broker".

Here are five of the best free (because you shouldn't have to spend real money to play with fake money) online games for learning share trading:

1. Wall Street Survivor
2. How The Market Works
3. Young Money Stock Market Game
4. Market Watch Fantasy Earnings Trader Game
5. UpDown


These games will help you to learn how to pick and trade stocks.

Here is a Five Forces analysis which is always a good way to start, on any stock/company, again any market capitalization.

1. Bargaining power of customers

2. Threat of new customers

3. Bargaining power of suppliers

4. Threat of substitute products

5. Competitive rivalry within market

The  two important things you should do to become successful investors in parallel to play virtual games.

• Find a good penny stock service to subscribe to. These services now offer stock picks, trading and portfolio management software and educational services, too. This is a great way for beginners to learn or experience the stock market. You should observe for at least 4/5 months before investing real money. Remember, saving money is more important than earning money.

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 • Know when to Quit. Setting a time to sell your stocks is important, because it can change the course of your investments. Capping at 50% profits is already a good margin. Getting greedy and expecting further profits can make stocks wipe out the investments.

Normally, I prefer startup companies because there is a chance that the stock will become a multibagger in few years of time. When buying stocks of startups, the most important point to consider is the profile of the founder. You may read the article by Shikhar Ghosh, who is a Senior Lecturer of Business Administration at Harvard Business School, to find out more.

My two personal secrets for penny stock investment
a. Don't sell short
b. Use mental stops


Best Online Penny stock trading tools

Yahoo! Finance - News, filings, research, quotes and more.

Google Finance (beta) NEW! - New source for quotes, news and filings.

MarketWatch - News, filings, research, quotes and more.

SmallCap Center - Small-Cap news, filings, quotes, analysis, etc.

Rel time Streaming Quote Tools

Equity Feed - Pro-level real time streamer geared for OTCBB/Pinksheets.

Investors Hub - Real time streaming quotes available, Level 2, news, filings, charts and more. All integrated with the most popular penny stock message board out there.

Due Diligence (DD) and Technical Resources:

Scams | Pump & Dumps - Tips for avoiding scams and front loading activity.

ShellStockReview.com - Information and listing for shell stocks.

Naked Shorting - A great explanation of naked shorting and the corruption of the stock market.

Timothy Sykes, a penny-stock expert who trades both long and short, says you must not believe the penny-stock stories that are touted in emails and on social media websites.

If you learn one thing today, let it be this: Beware of free stock information on the Internet! The source of the advice obviously has some hidden stake in the fortunes of the stock, through options or personal holdings, and they don't care if you lose your shirt as they make a few bucks!