Penny Stocks Are Hot Right Now, Is It Time To Buy?
When it comes to investing, should penny stocks be a focus? Right now, we see rampant buying in these cheap names. Day after day, the most active stocks in the market are those defined as penny stocks.
What Are Penny Stocks?
According to the basic definition, penny stocks are shares of companies trading below $5. So you can see how these cheap stocks can dominate the popularity list. Even on the high end at $5, it only takes a small move of 50 cents to equate to big gains. The same can’t be said for companies like Apple (NASDAQ: AAPL), General Motors (NYSE: GM), or Tesla (NASDAQ: TSLA), even though they’re also part of the “popular crowd” right now.
However, if you’re new to this class of stock, you must understand the landscape fully. Some traders like to treat these like lottery tickets. But in actuality, there are real ways of consistently profiting from stocks under $5; you need to have a strategy that isn’t the same as the one you use in roulette.
Why Buy Penny Stocks?
It’s pretty simple to see the attraction of penny stocks. You hear about large gains every other day. But buckle up because it’s quite the rollercoaster ride. Just as quickly as the 50 cent move triggers a big rally, it can also deliver a crushing blow. The cheaper the stock, the higher the chances you’ll be dealing with a lot more volatility. For instance, I discussed a $5 stock above, but what about penny stocks under 10 cents? Even a few pennies can be the difference between hitting it big or halving your account. When it comes to answering the question, “Why buy penny stocks,” the answer seems simple: to make money, of course.
There are few other investments the yield such large returns so quickly. Also, as we’ve seen, the new crop of day traders tend to pick higher risk investments. This has become one reason that more volume has come into the small-cap arena, in general. With apps like Webull and Robinhood, penny stocks are just a few taps away.
Are Penny Stocks A Good Investment?
As far as penny stocks being a good investment, once you read our top 8 things to watch, you can be the judge. Just like anything in life, those who have practiced and conditioned themselves in a specific field have a competitive advantage over those who haven’t. This applies to the penny stock market as well. Those who have that competitive edge will try and take advantage of you.
If you feel like you can handle the pressure and dangers of penny stock trading, just read some of these principles that penny stock traders, utilize each day:
1. Get Past the Fluff & Pay Attention to the Source of the Information
Understand what might be bringing attention to penny stocks. Is there a paid promotion? Did the company release major headlines? Are there rumors buzzing among traders on outlets like Twitter, Facebook, or Reddit? Penny stocks are speculative in nature as it…