Buying Penny Stocks Profitably – How To Do It Right

A lot of times when people hear the phrase buying cheap penny stocks, they start thinking cheap stocks that can be bought at really low prices and then sold quickly for a profit. What ends up happening often is that they buy a penny stock and see its price fall quickly. In a panic, they sell only to see the price rise up beyond the point where they bought the stock at. This article is written to minimize the chances of exactly that scenario.

Like all good investments, the profits are made *before* you make the investment. What this means is that you buy an asset at a discount and sell it when its reached its fair value or once its overvalued. It sounds fancy but its really a simple process.

First, don’t be lazy about research. This is usually the first stumbling block when it comes to penny stock investing. Most novice investors read get some tips either at the water cooler or in investing forums. Then they go ahead and buy the stock immediately to avoid any pain of missing out on gains. The gains dont come of course. I am not suggesting you don’t keep an eye out for high-growth stories. Once you hear about a company that is making great strides, you have to dig deeper. What is the business model, competitive advantage, price range, book value and P/E ratio. There should be a basic checklist for all companies that you research. If one or more criteria in that checklist are not met, dont invest.

Second, plan your trades in advance. Investing or any decisions to do with money are usually emotional. If you want to get better at it, you have to minimize the effect of emotions in this process. During your research process, you should be able to identify the ideal price range that you are willing to buy a penny stock. At the same time, you should figure out what your ideal selling price range is i.e. the percentage profit you are willing to settle for. In effect, you are planning your entry and exit points before you make the trade. This will save you a lot of grief in the long run.

Third, use the best penny stock broker without paying more than you should. Long gone are the days where there were a handful of brokers and they would charge an arm and a leg for their services. These days online brokers are fighting each other to get your business. Before you jump in, compare online stock brokers to see which one will work best for your needs. There is no need to settle for one that you are unhappy with.

What are you waiting for? Lets get started today …