Quite a few traders believe that making profits from penny stocks is easy and requires no effort. Some even think that profits from penny stocks are simply due to luck. All this is completely untrue.
Even though trading Penny stocks is one of the easiest ways to make amazing profits, it works only if you avoid these 4 biggest mistakes.
#1 Jumping In and Trading
Many novice traders jump into penny stock trading without adequate trading education, without developing trading strategies, and without doing any paper trading. Unfortunately, such traders just became a part of the statistic that more than 90% of traders fail!
Every successful trader has taken the time to master the basics of trading. They spend time to create specific trading techniques that are well-suited for them, and fine-tune these strategies after a lot of trial and error. They also make sure to try out their strategies through paper trading before trading in the actual stock market.
#2 Being too Cautious or Too Careless
Many times, penny stock traders are either too cautious or too careless. Some keep a very tight stop loss and pick only very low-risk trades. But playing it too safe will not help you get good profits from penny stocks, as the rewards of these low-risk trades will also be very low. On the flip side, being too careless can also result in you losing your hard-earned money. This is because high-reward trades are actually high-risk ones a well. The trick is to find the balance – first, identify your risk appetite and then choose your risk tolerance level before entering into any new trade.
#3 Not Choosing a Powerful Mentor
Many novice traders do not enroll in good stock market education courses of trained and experienced mentors because of the cost involved. However, the fact remains that experience is the most powerful teacher. Choosing an experienced trader as your mentor can help you scale up quicker as a trader while avoiding the pitfalls. The money you spend learning these strategies and basics would be well-worth the rewards they bring in. Navigating the tricky waters of penny stocks and making consistent profits – this does require the help of an expert.
#4 Following the Crowd
Many times, people choose penny stocks based on the names they hear from the media. But the truth is that the news of a penny stock get published in media only after the stock has already moved significantly. The technical traders call these stocks as overvalued by this point and the price bubble usually bursts quite soon.
In addition, Penny stocks are well-known for their scams. Many scammers use media for paid coverage of their stock. Once the price gets inflated enough, the scammers dump their shares and make a near profit while genuine investors incur losses.
Instead of following the crowd, makes sure to spend time in researching for good penny stocks. These could turn out to be hidden gems!