A Beginner’s Guide to Investing in Penny Stocks

Perhaps the idea of investing has always intrigued you, but you’re not sure how or where to start.

Many people enjoy the idea around penny stocks because they offer a high rate of return and instant wealth, versus committing yourself to the waiting game.

The name of the game is educating yourself. If you have little idea of what stocks you can depend on, you have to begin the research. After all, you wouldn’t want to invest in a bankrupt company.

Here are several tips for how to invest in penny stocks. Consider these tips as you begin the process toward investing.

1. What Are Penny Stocks?

In order to learn the proper tips and tricks to investing, you need to understand what they are and how they differ from other stocks.

Despite the name, a penny stock is considered by experts to be any trade that costs you less than $5 a share.

The companies that you would be investing in (with shares that low priced) would be ones that have very little profits.

So many people are tempted by investing in penny stocks, rather than regular stocks, because of their low price. However, they don’t do any other research to find out why they’re priced the way they are.

That said, mind your money as you’re investing in penny stocks and you’ll be all the better for it. Find a good balance on how to find the risk that breeds reward, without sacrificing your cash flow to do so.

2. Use Paper Trading as a Tutorial

No Olympic swimmer ever became a gold medal winner without having first taken swimming lessons in their youth, right?

What’s the rush to invest in penny stocks, or any stocks for that matter, without practicing first?

There is an amazing trick in the industry called “paper trading” which refers to you performing a simulation of trading stocks. This requires no money, only a pen and paper to keep notes on.

Start investing in stocks, then keeping track of the good decisions and bad decisions you make. It can be a tremendous asset as you learn the penny stock jargon and continue your research on the subject.

3. Find Out What Trade Tools to Use

Batman doesn’t leave the house without his belt of gadgets, and you shouldn’t go into trading without helpful tools as well.

There are a lot of different penny stocks out there in the world, it’s hard to filter down your options without a screening tool to do so.

Even better, there are several different options for you to choose from. You can use software such as Yahoo! Finance, FinViz, MarketWatch, Zack’s, MorningStar, OTC Markets, and a few more.

The important thing is that you find the software you feel is easy to navigate. You’ll want to use the filter features to zero in on certain stocks.

For example, perhaps you feel that it’s best to trade within the energy sector right now or at least, that’s the sector you have a firm understanding of. Thanks to your screening software, you can filter down that sector.

From there, you can place a filter saying you want to see stocks that are $1 or $2 each.

4. Get Involved in a Day Trading Chatroom

If you’re starting to invest in penny stocks without any prior experience, who said you had to do it alone? There are many investors out there that would love to take you under their wing.

By joining a day trading chatroom, you have access to ask questions and see valuable information on the current market.

People are constantly posting what they’re seeing and encouraging others to make trades here or there. It’s a healthy space to build business relationships and learn from the masters.

You’re giving yourself access to an entirely new world, you owe it to yourself to get a better understanding of it through people who’ve been in the business for a while.

5. Figure Out Which Type of Companies You Want to Invest In

You know the old saying “what goes up must always come down!”. While that quote was initially in reference to the principles of gravity, it weirdly serves as sound advice for stock trading as well.

Many people make the mistake of relying too heavily on investing in the hot stocks that everyone’s talking about. But that’s just the problem… everyone is talking about it.

That means it’s no secret how well that particular company or industry is doing, and so, by the time you’re hearing about it, it’s probably on its way down.

Instead, you want to figure out what type of companies you want to invest in and stick within that frame. Not venturing off too far from what you know.

Typically, experts say you should invest in industries that you have prior experience with. So, if you were in the financial industry at one point, then that would be a great place to invest in. You know valuable information that can help with your trading.

Invest in Penny Stocks and Reap the Rewards!

Now that you’ve seen a few major tips in your effort to invest in penny stocks, it’s time to start your journey.

Begin with the paper trading, see what you need help with, then reach out to a few people that are currently day traders for guidance. The questions you ask now will help you breed significant returns in the future!

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