Penny Stock Trade Risk Management
Penny stock trade risk management tips. How to trade penny stocks most safely. Don’t risk losing all your money by buying penny stocks that are on the brink of bankruptcy. Learn to calculate cash flow and pick penny stock winners.
The thing that makes penny stocks so much riskier than other stock market investments is their greater bankruptcy risk. When you buy stock in an individual company you take on that company’s credit risk. If that company goes belly up while you are holding their shares, you can lose your entire investment in the company. I speak from experience. This happened to me once when I first started to learn to trade penny stocks. I’m happy to say that I have never repeated that unfortunate and costly experience. I went on to learn
how to trade penny stocks
in a safer and more profitable way. I’d like to share some of the things I’ve learned over the years with you.
How to Find a Hot Penny Stock to Buy
- Find a penny stock company that is solvent. You will need to look at a balance sheet in order to figure this out. If you don’t know how to make this determination, see
Calculate Cash Flow
for easy instructions.
- Find a stock with a high enough trading volume that you can enter and exit your position smoothly. Pay particular attention to the past 5 trading days.
How much volume is necessary will depend on how large a block you plan to trade. I prefer to
buy penny stocks
which trade at least 1,000,000 shares per day. If you are only going to buy a few hundred shares, a trading volume of 100,000 shares per day may suffice. - Before you buy this diamond in the rough, check the
online penny stock message boards
boards to see how much promotion is going on. If your hot stock is being hyped all over the internet, someone may be pumping and dumping it. Stay away.
- Run automatic stops on your penny stock position.
Stop loss orders
are not 100% protective of your capital but they are far better than nothing.
- Be careful how much of your trading capital you
invest in penny stocks
at any one time. No more than 10-15% is a good rule of thumb. It is also best not to invest all of that into a single penny stock trade.
I am not a financial advisor. The information offered here is offered only for educational purposes. I am not suggesting that you put money into any particular penny stock investment trade.
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