Investing In Penny Stocks
Knowing how to find the highest quality investments and how to trade them is the most interesting, if not important, the part about investing in penny stocks.
Tools for Technical Analysis (TA): The RSI (Relative Strength Index) is one of the many simple and interesting tools you can use to enhance your trading results. You will have to find out which tools work best for you (if you do intend to use technical analysis, which you don’t have to), since this is only one example of the available options for technical analysis. To settle on the best technical analysis tools, considering your trading strategy, you will need to paper trade. There are a few “tried and true rules” you can consider in addition to these TA indicators:
The Confirmation Bias: Take note of confirmation bias with penny stocks. All new investors, human beings, or even beginner poker players, suffer from it. Limiting your focus to what your mind wants to see, even at a subconscious level, can cost you a lot.
Use of Limit Orders: When it comes to trading penny stocks, always use limit orders instead of market orders. For a company that is rarely traded, simply buying or selling their shares, on your part, can cause share price movements. This simply means that your buy transaction might cause the share price to increase slightly, only for it to fall right after your purchase order has been fulfilled. This will help you find penny stocks before the rally.
Use of Stop Loss Orders: Stop loss orders are by far one of the most important strategies when it comes to investing wisely in penny stocks. This entails making an initial commitment to sell off shares in case prices decrease to a predetermined level; for instance after a five percent price dip. It’s true that you will take a few small hits, five per cent losses, in the value of affected trades, but leave yourself open to the benefits of investing in penny stocks by sticking to this self-imposed rule. Similarly, selling losing positions as early as possible, consider this as taking them off like a band-aid, and allowing your gains to run will improve your trading results.