Don’t let the fact that penny stocks are a cheap fool you. It’s easy for you to lose loads of money off of a poor penny stock investment. Here are five tips one bonus that you should be using when finding a quality penny stock to invest in.
Concentrate on the stock market
The first thing to do is to focus on why something on the stock market is as cheap as it is. The fact is that some companies that are attached to these penny stocks are ones that might be new. These include companies that might also have business plans that are not all that appealing. These business plans might be so weak that they don’t have anything that encourages the company to bring out an IPO similar to Zerodha account opening. It does not mean that you have to avoid such a stock. It just means that the stock in question is relatively cheap when compared to what everyone else is offering.
Check the trade volumes
Second, you have to see what the trade volume is when getting into this investment option. In some cases, you might see a certain daily average that is relatively low. However, that value might be highly inflated because the volume for one day was much larger than it was on other days. It is often a sign of a stock being controlled by one or a few people who have a massive number of shares in that particular company. Their decisions to buy or sell a stock can easily inflate or deflate a stock’s value.
You have to get a better idea of what the daily volume numbers are in some cases. Sometimes one person might be selling or buying a stock on one day, thus dramatically changing the value of the stock. You need to be careful because a stock that has no volume would end up being a dead money stock where you’d have to sell shares only by dropping it at the bid.
Check out the company
The third tip is to take a careful look at whether or not a company that has a penny stock can actually get a profit going. You need to see if the company is actually profitable because a business that can make a profit will be more viable.
The fact is that a stock that can make a profit might be able to grow itself, thus increasing the value of your shares. A stock that cannot make a profit might have to get more financing or move into a joint partnership with someone else. This will cause the value of your shares to weaken after a while. You clearly have to do your research to see who’s actually viable among penny stock companies.
Lay your strategy
Fourth, you must prepare your plan for entering and exiting a stock. It only takes one or two pennies in the stock’s price to determine if you have a huge profit or loss in some cases. You might want to keep any stops on your stocks as close as possible so make sure you know the Zerodha charges. For example, it helps to limit all your stops within one or two cents of the value that you got your stock for. It has to be done to keep your stock from being too expensive.
The final consideration is to think about where you might learn about a stock. You might find information on a stock by reading a penny stock newsletter that you might get in your email box each day at a certain time. You might be able to find a quality newsletter run by insiders who know what is going up and down.