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| A Guide to Trading Penny Stocks and Small Cap Stock Stocks |
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| Written by James Brumley |
| Monday, 23 February 2009 10:26 |
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Traders have given them many names, like bulletin board stocks, micro caps, penny stocks, and others. The attraction to them, however, is all built around the same premise " that the market is on the verge of deciding a particular company is the next big thing. There are a few lessons to keep in mind about trading small cap stocks though. While volumes of books have been written on the matter, five core principles may be more than enough to really establish a framework for success in the penny stock market. Though not the only piece of the puzzle, traders who want to get the most out of micro caps must first fully understand one key idea trading and investing arent the same thing. Its fine to be both at different times for different reasons. However, traders should also know that one philosophy requires patience, and the other one requires speed. The two approaches dont mix well. Second, penny stock traders and investors should accept the fact that smaller company stocks are easier to drive higher or lower than large company stocks. In fact, a large institutional player may have the ability to very quickly buy or sell the majority of a small companys float. Traders just need to be prepared to see rapid swings when that happens. Third, successful penny stock traders focus as much on charts as they do on the stocks perceived value. Sometimes these stocks trade at appropriate values. However, just because theyre undervalued or overvalued doesnt mean theyre going to rally or sink. Reading charts will help time optimal entries and exits of stock picks that are based on fundamentals. Fourth, small cap stock speculators should recognize theyre in a competition of sorts with other small cap speculators. Plenty of profitable companies see their stocks sink, and plenty if unprofitable and pre-profit companies watch their stocks sky-rocket. This is because all the games players are trying to beat one another to the punch, so you also have to think about how your opponents are thinking. The fifth characteristic most successful bulletin board stock traders have is the willingness to take profits. Thats not to say these speculators lock down a gain every time they can, as the longer you can hold a stock the more money you can make. But, too many traders never realize that losing big is far worse than not winning big with absolutely every single trade. One last thought the pros and cons of trading penny stocks have been debated for years. While on the surface it may seem as if the arguments against penny stock speculation are strong, theyre typically being made by traders who simply didnt understand these five concepts. The top-performing micro cap stock traders are quite aware of these five simple ideas, however. Bottom line " With the right mindset, anyone can create big profits with small stocks. About the Author: Editor of the Small Cap Network, James Brumley holds a degree in finance and has dedicated the last 10 years toward helping investors identify undervalued small cap stocks and profitable penny stocks. Investors looking to generate above average investment returns may stand to benefit greatly by becoming a reader of a free newsletter provided by the Small Cap Network. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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