Getting Started With Penny Stocks: Learn To Fish Before Putting Bait On The Line
Updated January 17, 2021
Everyone knows that penny stocks are high-flying, high-risk stocks, with many movies made about them. Typically these movies involve some shady stockbroker looking to get people to buy penny stocks of worthless companies, sound familiar?
When the movie “The Wolf Of Wall Street” came out, it shined a very negative light on these low-priced stocks. While there are scenarios like this with penny stocks, the vast majority of small-cap and micro-cap stocks have real, underlying companies. It all comes down to finding the right penny stocks to buy.
So if you’re just getting started in the market and penny stocks are something of interest, it’s important to know some basics. The first of which is to learn first, then trade later. Going to message board sites like Reddit and seeing members flaunt massive winnings can be hard to ignore.
Maybe it was luck or, maybe it was experience that helped those users make money with penny stocks. At the very least, they had a general understanding before diving in, head-first.
Luck Is Your Worst Enemy With Penny Stocks
Penny stocks aren’t hard or expensive to buy. You can scoop up thousands or even millions of shares for less than $100 at times. This can make for a dangerous situation teaching or rather “training” a newbie to think of penny stocks like a lottery ticket. A good rule of thumb is to only risk what you can afford to lose.
But with penny stocks, because the upside can be so big, this leads to some people treating low priced stocks like a lottery ticket. “I’m ok losing $100 in exchange for possibly making $1,000” but it isn’t that easy either.
The “10x mentality” isn’t something that’s easily duplicatable. It’s like playing baseball and thinking you will hit a home run every time. Not only is loss a very real thing, if you get lucky a few times, it almost trains you to think you’re good at trading, when, in fact, but you may also have just gotten lucky. My point is this, learn how to trade before jumping in. An educated trader not only can make winning trades but they also understand how to avoid or mitigate losses.
If you got all-in every time, there’s a higher likelihood of going “all-out”. Getting your account completely wiped out is a tough pill to swallow. With penny stocks come a lot of risks and if you don’t know how to manage your trade, it will be difficult to deal with trades that don’t end up working out. And if all you know is “I either make money or lose it all,” you may be better off going to the casino and playing slots.
What Are Penny Stocks?
Right now you may be a bit confused as to why we would start with something other than the definition of penny stocks. I’m here to tell you that the…