Find Promising Cheap Stocks In Three Steps

If you are looking to diversify your investment portfolio by adding stocks but you

have limited funds to trade, then penny stocks could be your calling. Be warned, however, that penny stocks are very risky albeit very rewarding investments. If you play your cards right, you can make substantial profits and if you don't, you can expect to be cleaned out. To avoid this from happening, read the following tips for choosing and trading penny stocks.

Choosing the Right Penny Stocks

These stocks are traded via quotation services like the Pink Sheets and the OTC Bulletin Board, with very minimal regulatory requirements for being listed on these sites. It is for this exact reason that penny investments are high-risk endeavors especially when the matters of lack of financial reporting requirements, limited liquidity and Internet fraud are thrown in. As such, the importance of doing your research cannot be overemphasized. You must look into the company history, its organizational structure, its financial liquidity and stability, its future business plans, and its reputation in the industry.

You will note that gathering information and the purposes thereof on stock companies are very similar to that used for Big Board-listed companies. The main difference is that you have to be extra careful about penny stock companies. Of course, you can find reputable penny stock companies worth investing your money in for the long haul. Keep in mind that some of these companies have already been listed on the Big Board but were de-listed for various reasons.

Trading These Penny Stocks

When you have narrowed down on a few penny stocks, you can to move on to the next step. Pick the right trading strategy:

* Follow your entry and exit plan. The penny stock market being so volatile, you must neither be too greedy nor too daring in taking risks.

* Always listen to your informed judgment. Many investors have lost money by listening to insider information and hot tips.

* Let the trend be your friend for, indeed, the market is always right. If you follow the trend and don't get too greedy, profits are there for the taking.

* Only buy stocks that you have done sufficient research on, even when the company appears to be on the up and up.

You might also decide to hire a stockbroker to take care of the grisly details of penny stock trading for you. There are two options in this case: A regular stockbroker who also trades in penny stocks or a specialized stockbroker who only trades in micro stocks. No mater what type of stockbroker you choose, you must always stay in top of your investments. Ultimately, it is your money at stake.

by: Mike Singh

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