Consider Penny Stocks for Solid Returns

The type of stocks referred to as penny stocks and are also known as micro caps can be an excellent investment for many people.  Penny stocks are very cheap to own and can do much for diversifying your portfolio since you can own so many of them at one time.  Even though the name “penny stocks” probably evokes images of stocks selling for $0.99 or less, these types of securities are really made up of all stocks that are less than $5.

Micro caps are often perceived as a solid investment due to the fact that you can buy them for such low prices and then, if the stock’s price moves up just a little, you can see a very high return.  As an illustration, if you buy a micro cap for $0.25 a share and then the price shoots up to $1.00, your money has quadrupled!  It’s very different for the higher valued stocks.  For example, a $0.75 price increase for a stock that’s now selling for $60.00 a share is not very impressive.  Inexpensive stocks can realize high returns on seemingly insignificant price increases.  Micro caps see price fluctuations like these all the time.

Identifying a micro cap that is in a pattern known as a rolling stock is a very easy way to trade these stocks.  A stock that is in a rolling pattern is very easy to identify.  This is merely a stock that trades month after month between two price points.  Essentially, the stock will rise in price for awhile until it reaches the upper price point.  It will then decrease in price until it reaches the lower price point.  The stock gets its name because it looks on a chart like it’s casually rolling along.  Rolling stocks are very easy to identify on a chart.  Once you have located a penny that’s in a rolling pattern, trading it is very easy.  You just buy it when it’s at the low point in its range and sell it when it reaches the top of its range.  This is a very simple strategy to implement.  You can profit from a rolling stock by trading it over and over again.

While it’s true that you can profit from a penny stock multiple times, there are some potential negative aspects of these securities that you should be aware of.  To start, micro caps are usually affordable for a good reason.  Micro caps are usually cheap because they are either new to the market or they are companies that were higher priced at one time and have decreased substantially in value due to a negative event.  Since there could very well have been a negative event in a company’s history that has caused its price to drop, you will want to research the company to see if it is something that is only a temporary setback.  Take the time to review a company’s history and investment basics before investing to see if it has a promising future.

A penny stock’s trading volume is another aspect you should take the time to review.  If the penny stock has inadequate trading volume, you might not be able to sell it if you are in a position where you need to quickly do so.  With sufficient volume though, you can usually quickly sell the stock.

Dynamic, affordable and profitable have all been used to describe the penny stock market.  Before launching your penny stock trading journey, be sure you are fully aware of the potential pitfalls of trading these securities.

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