Penny stock brokers and investors make a lot of mistakes that are causing them to lose money. And with penny stocks, these mistakes can result in investing in a stock that quickly goes under due to little regulation.
Nine of the most concerning mistakes include:
1. Trading Too Fast
Timothy Sykes made $3,000 today trading penny stocks, why don’t I dive right in?
This is the mentality that will cause a trader to lose a lot of money overnight. The worst thing any broker can do is start trading without arming themselves with the knowledge needed for success.
Learn how to trade properly and safeguard yourself against losses.
2. Blindly Following Stock Picks
Newsletters, forums and television will lead you down a path of potential stock picks. But you need to remember to research these picks before diving right in and buying the stock. If you follow picks blindly, you’re setting yourself up for failure.
The best thing you can do is conduct your own research on the stocks mentioned.
Picks can be delayed by hours or days, and you may have missed the money trail along the way.
3. Trading Too Casually
Penny stocks can’t be traded casually. You have to have a plan to buy and sell the stock quickly, or you’ll lose money in the process. When it comes to penny stocks, it’s important to know that you can’t just go about your week forgetting a trade you made on Monday.
Keeping on top of a trade is a necessity.
You need to know when to sell, or you’ll see your money disappear.
4. Thinking Penny Stocks are Long-term
A foolish mistake that many penny stock brokers make is going into trading with the same mentality as buying listed stocks. When you invest in Google, it’s a long-term investment. When you invest in penny stocks, it needs to be a short-term investment.
5. Holding Onto Ego
Everyone makes bad trades – it happens. But problems rise when a person doesn’t know when to cut their losses. If you did your due diligence and a stock fell, it’s time to cut your losses. Penny stocks may never recover, and keeping your money tied up may result in you losing nearly all of your initial investment.
Stocks need to move in your desired direction, be it in minutes, hours or days.
If your forecast is wrong, get out while you’re still in the green.
6. Trading Low Trades
Trading requires commissions to be paid on each trade. If all you can afford to trade is $50 – $200, you’ll find that the commissions will cause your profits to dwindle. A good rule of thumb is to only start trading at the $2,000 level, according to Sykes.
If you trade quickly, commissions quickly add up.
But if you have a $500 account, you can start to learn the ropes and move on from there. While $50 – $200 accounts are far too small to be feasible, $500 accounts are enough to make mistakes and learn the ropes. Again, don’t expect to make a lot of money with micro trades and high commissions, but do expect to learn how things work.
7. Expecting to Make Money Quickly
A lot of penny stocks are scams. Many of these stocks will go under, and no one will ever hear from the company again. And trading with all of the scams will result in you losing money. You could read every book and newsletter in the world and bet on the right company on a wrong day and see your trade fizzle.
Don’t expect to make quick money when you’re first starting out.
Anyone that is just starting to trade needs to learn the right strategies for success. if you know and learn the strategies by losing money, you’ll never make the same mistake again. Learn the strategies, implement them and don’t expect every trade to be in your favor.
8. Never Bet it All
Don’t kid yourself – penny stocks are a gamble. All too often, people will grow their accounts and place all of their money on one penny stock. The investor can make a ton of money in the process, or he can lose it all.
Never put all of your money in one basket, or it can fade away overnight.
9. Getting Too Invested in a Stock
It’s far too easy to get too invested in a stock. Traders have a tendency to get overly invested in a stock. And many of these traders really don’t know what is drawing them into the stock so deeply.
It’s possible that you like the company’s potential, future or you have a hunch that the company will explode in the next few years.
Guess what? Penny stocks aren’t like investing in the S&P 500. Manipulation, pump-ups and greed cause these stocks to jump through the roof (you want to invest before this happens). and tumble down to the ground (hopefully you sold before this point).