5 ways to avoid losing money trading penny stocks
These are the top 5 reasons people lose money trading penny stocks.
Some traders can see gains of $300 and not think that is enough of a profit and continue to hold on to a stock until they are down $50 bucks or more. Learn to take profits when you see them.
2. Cut losses
Often a number #1 occurrence associated with losses are that the trader does not sell their position when they are down. Any trader's limit to a stop-loss should be 5-percent - 10-percent the most. It is easier to make back 5-10 percent back, than 50-100%. Even if you believe in the company, you can always buy back in cheaper or with less of a position than you already hold.
3. Heavy dilution
If you can sight heavy dilution on a stock, it is probable cause to sell quickly. If a companies only way to fund their operations is to sell stock often, then that is not a good sign for potential investors because it will decrease the value of your position.
Dilution is not the worst thing, but we are speaking in regards to market sentiment towards it, not about individual opinion. You will notice when a company releases news of public offerings, secondary offerings, or Form 4 (disposal of shares), a stock price will immediately start to decrease due to shareholders lessening their position(s) and selling parties bringing new shares into the market.
Although you may feel hopeful for the company, how you withstand the affect of dilution depends on your bank account and personal investment choices. However, as the market will show, most try to avoid losing money and will also sell along with the company.
Be aware of short sellers who may take advantage of the decline in price per share to short the stock and gain profit while doing so.
To spot dilution, you can obtain a Level 2 through your trading brokerage firm. Another quick way to know if a stock has dilution is to realize the amount of shares traded versus the outstanding shares/float. If the float/ outstanding shares has been traded and the stock does not move a significant amount, you can almost be assured that there are new shares coming into the market.
4. Dead stock
Some penny stocks are thinly traded to where it is hard... Login To Read More