How Do You Know If Penny Stocks Are A Good Investment?
Time and time again, penny stocks will attract countless investors. Whether it’s for quick profits or a shot at a big return, people will look to make money with penny stocks. But to do so, it isn’t as easy as hitting the “buy” button on your penny stock trading app. Sure, you might get lucky here and there, but in the long run, luck plays a small role.
To understand penny stocks, you need first to understand investing. All investments carry risk. Some risks are higher than others, especially when considering the investment type. When you look at any list of penny stocks, you are looking at mostly start-up phase companies.
These companies have fewer assets, higher liabilities, and may have already raised expensive money. What I mean by this is that companies raise funds with stock and sometimes the price that they raise funds at is much lower than the current market price.
Penny Stocks, Charts & Technical Indicators
Understanding how to read “candlestick charts,” learning certain indicator types, and the like will help you in the long run. This is especially true if you’re style is along the line of trading penny stocks versus investing in them.
Even if you’ve never used technical indicators, learning the basics is relatively easier than you think. Things like support and resistance, trend lines, and volume are simpler tools to use. These can help cut through the noise when stocks are flying high.
For instance, if you see some of the biotech penny stocks rallying thanks to vaccine news, knowing where historic levels of support and resistance can help set your profit targets. So many times, traders will “YOLO” a trade, letting fate direct someone’s profit goals. But without proper targets set, you stand to lose more than you gain in the long run. So it’s very important to learn how to trade penny stocks from the start.
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A lot of what I’m referring to has to do with the chatter you’ll likely read online. If you know where historical resistance levels are, you can set proper profit targets and score big on momentum runs. Meanwhile, novice traders will simply “hope” the stock goes higher. Learning basic technical analysis is a huge asset when it comes to trading.
Know The Basics Of Penny Stocks & How They’re Funded
As with all things, loans come at a price. In the world of cheap stocks, they usually equate to more stock and lower prices. So there will likely be growing pains for a lot of these smaller companies. Regardless, it’s important to understand that not all penny stocks are hopeless just because of how they raise money. Management is key.
Given the state of certain industries, “expensive money” doesn’t always mean death spirals for a penny stock. It comes down to how the companies manage their lenders and what their use of proceeds will be….