It feels like a lifetime ago when we were in a huge bull market for several years straight. This question would be a lot easier to answer then but do I believe that penny stocks can make millionaires even today? Yes, it is possible. But it’s not going to be a quick and easy ride.
A lot of folks are attracted to penny stocks because they like the sound of huge profits with little money invested. At least thats what people who are trying to persuade you to buy penny stocks usually say. Nothing could be further from the truth. Let’s separate the facts from the fiction.
Fiction: Penny stocks are cheap so you can buy a lot of them and make big profits quickly
Fact: Penny stocks usually are priced at less than $5 and have a relatively small market cap. These stocks don’t usually have a lot of volume so sometimes the prices of these stocks won’t budge at all. At other times, the prices can drop or rise fast. These stocks are very volatile. So, a few big orders can move these in either direction.
Fiction: I will make a killing in a few trades and retire.
Fact: Making profits in penny stock trading is not that easy. Sure you might get lucky and hit it big in a trade or two. If you do, this is likely to breed overconfidence and you won’t settle for anything less than a home run from that point. The end result is making a lot of bad trades as a result of greed. I haven’t heard of anyone ‘retiring’ from penny stock trading. Yes, there are folks who make big profits by devoting a smaller percentage of their portfolio to small cap stocks. They do this by continuously learning from their trades and getting good at it over an extended period of time.
Fiction: I just bought stock XYZ after I heard a hot tip. It’s a sure winner.
Fact: It’s common in investor psychology to gain more confidence in your trade after immediately making the trade. The same thing happens when you place a bet at the racetrack. We’re hardwired that way. Don’t fight it. It’s better to stick to the facts. When you hear about ‘hot tips’ get answers to the following questions about the stock: Is the source of the tip reliable? Have you invested in this sector successfully before? Does the stock chart fit a technical pattern that you are familiar with? Are the fundamentals of the company solid?
We think small cap or penny stocks are an important part of your portfolio especially if you are looking for growth in the longer term. There are some strategies you need to be aware of otherwise you will learn everything the hard way.
To avoid costly mistakes and pick the best penny stocks visit –> http://www.wheretobuypennystock.com/. Article Source:http://www.articlesbase.com/finance-articles/can-penny-stocks-make-you-millions-1772498.html
Good luck and enjoy big penny stock profits.
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Posted under Finance
This post was written by MoMoney on January 24, 2010
