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Have you ever wondered what it’s like to become a millionaire through investing in penny stocks and living your dream? We are sure you did, and you might’ve also heard of numerous accounts where people have achieved this goal tool. However, whether you will become a millionaire through penny stocks or not depends on your choices and strategies. Penny stocks have a high degree of risk, and even though they are priced at less than a dollar, the speculation may tumble down or up without notice.
A collective perspective from people who have managed to create a million dollars from penny stocks is that it is highly volatile, and not everyone will be able to handle the changes in the market. The process is a long and tedious one, and you also need to trade daily to buy and sell the stocks at the window of opportunity. However, if you also want to know their secrets and make money through these stocks, keep reading and revel in the secrets of trading that can help you earn millions or make a significant amount of money.
Does Anyone Get Rich From Penny Stocks?
Yes, a small number of people make a significant amount of money trading penny stocks. However, most penny stock traders earned money by manipulating low liquidity markets (pump and dump strategy) or providing penny stock online courses.
Penny stocks have low liquidity, extremely low trading volume in some moments, volatile nature that does not depend on fundamental data or company news. Science researchers made proof in multiple research papers that penny stocks are not more profitable than non-penny stocks. The majority of traders earn less trading penny stocks than non-penny stocks.
What are penny stocks?
Penny stocks are also called microcap or small-cap stocks. These are generally raised by small-scale companies and have shares that are worth less than a dollar. The market capitalization of such companies stands lower than $250 million. These markets are notional and trade at the OTC market.
These penny stocks are eruptive, and if you are prudent enough to be aware of the changes, you earn a fortune. Since penny stocks are low-priced, you can start investing even with a small amount, hence pennies.
However, penny stocks are not immune from the scammers that the market is brimming with. They create a pump and dump scheme where the fraudsters collect shares, promote them, and sell them to earn money. The innocent investors fall prey to these malicious intentions and suffer heavy losses. Hence, The Securities And Exchange Commission constantly warns the penny investors to be cautious lest they lose all their investment funds.
Investors earning steadily through these stocks are successful because they know the market’s curves and reap advantages from the situation. Their strategy comprises long & quick trades, short bets, and quick exits to accumulate profits. After trading for a significant period, the investors become more experienced and know when to play their cards in the markets and recognize the bait that scammers throw.
For example, scammers follow the trick where they promote shares and then sell them. Long-term players in the market are aware of when to buy and sell these shares to avoid being reeled into the scam.
Penny stock investment is not a stable choice for the long run. Instead, it is a wager against the odds where you move your funds on speculation. Hence, if you are looking for retirement accounts and investments, it is better to steer clear of penny stocks.
Where can I find lucrative penny stocks?
Choosing a penny stock is highly dependent on the returns that you get for it. To find out about such a stock, you have to conduct a meticulous study and dig deep into the company’s history to find out future avenues for profit.
Additionally, you can use these factors to determine the ideal penny stock:
- Research about companies with a specific range of market capital, like $1 billion.
- The share prices should also be particular, like $1.
- Research the services/products that the company offers.
- Meticulous technical analysis for the metrics of the company.
- Place your bet on small companies that have been growing consistently.
- Narrow down to companies with a good sales record with an upward shift in the last 2-3 consecutive years.
- Your ideal penny stock will have fewer debts, high profits, and growth at an enhanced pace.
You also have the stock screener tool at your disposal, which will further help to cut down on many options and present you with the most suitable stocks. You can find your best pick by using the filters of volatility, performance, price, and other metrics and find the stocks that best fit your criteria.
After taking your pick, the next step is to buy the shares or get on a watch trail to follow if your speculation is true. There are applications out there to simulate trades so that investors can acquire an idea before diving into the share market.
How to diversify the portfolio?
The best penny stock constitutes underrated and undervalued but has a promising future with steady growth over time. However, scouring the platform for this profitable penny stock is not an easy task because:
- To find the best stock you might have to lose out on many stocks.
- Thin trading curbs you from acquiring good stock volume.
- Holding on to the stock until you become a millionaire might be a tedious task.
Penny stocks favor your side if you master the strategies of short-term trading. However, patience is of the essence here, and if you lack that, you should consider leverage compounding and large-cap stocks.
Cons of Penny stock trading
The Penny stock market is not as efficient as the share market. Hence, you can make the most of the profit-making opportunities that come your way. However, this is still not suitable in the long run and here is why you should not invest in penny stocks fully:
- Penny stocks are volatile, and the gap between the changed prices is much more than the large-cap stocks. Hence, even a simple miscalculation can cost you a lot.
- It’s a hunt to find the desired information regarding a company.
- Scammers, significant players, and market-makers can manipulate the stocks.
- Penny stocks are not subjected to scrutiny and observation like the large caps. Hence, it can lead to a higher risk of fraud.
How to minimize my risks?
Here are some ways in which you can minimize your risks and grow your money via penny trading.
- Before any investment decision, you must familiarize yourself with every market aspect through research and study. Hence before investing funds, invest time in study.
- Once you get the hang of the market, you will revel in the fact that penny stocks are profitable if you invest at the right time! First, however, you need to be watchful of the right opportunities and then trade.
- Pump and dump scammers are filled on the penny stock market in plenty. They promote penny stocks very exuberantly and scam the investors.
- It would help if you kept your distance from the pink sheet stocks. These stocks are prone to fraud, and hence you should only invest in reputable companies.
- Make sure to invest in stock with high volumes with the chance to cash in quickly.
- Do not put all your funds in one basket. Instead, consider diversifying your portfolio and investing in different industries to minimize the risk.
- Penny stocks are meant to be traded every day. Therefore, you need to monitor the market and find the best time to sell or buy. Daily trading will help you make money efficiently.
- You should only invest the money you have in excess and not your emergency funds or money from your budget.
Conclusion and personal opinion
Penny stocks are characterized in research papers by high beta, high return, high BM ratio, high idiosyncratic volatility, and low liquidity. I do not like to trade penny stocks because in my opinion fundamental research and technical analysis do not give wished results.