Is day trading penny stocks really a wise move for your investment activity? Many people are wary of this activity, and with good reason. While you certainly do hear the glamour stories of the many investors who’ve made fortunes with penny stocks, you often times don’t hear about the thousands who’ve lost a ton of money in the process.
Penny stocks are notorious for enabling you to make either huge gains or losses overnight. Many people hear stories about somebody who made a million dollars in a couple days day trading penny stocks, and become so enamored with that they don’t realize these same investors (gamblers, really) most often lose all that money soon after.
Believe it or not, penny stocks are nothing more, nothing less than glorified gambling. Yes, there are some investors who can make a lot of money with this avenue, but only if they are absolutely sure of what they are doing. The reason for their volatility is simple: every one of these companies that are trading for les than $1 per share got into the situation for a reason.
Usually, it was either bad management, poor economics, or a combination. Therefore, you’d better have a good reason for thinking a turnaround is about to occur before laying your money down.
The main reason day trading penny stocks is so risky is that it doesn’t take much to affect your investment. For instance, if you buy in at .25 cents, and the stock goes up to .50 cents, you’ve just doubled your investment just by a .25 cent gain! Of course, the same risks apply for it going down.
While a .25 cent swing for most stocks would be hardly noticeable, for penny stocks they can be either mega profitable or suicidal. Therefore, if you do plan on entering the exciting, non-stop action world of penny stocks, you need to be absolutely sure you are an expert at looking at a company and spotting a turnaround possibility.
Think about this: most of the world’s top investors have gotten to the point they are at by investing in good stocks that have exhibited a long term of profitability. When you invest in penny stocks, you voluntarily take yourself out of that realm and focus only on companies that have proven they can’t turn a profit. Yes, sometimes miracles or turnarounds do occur, but not very often.
If you do plan on entering this world of day trading penny stocks, you need to become an expert at spotting companies you are sure will turn things around, and jump in at the right time. No, making money with penny stocks is certainly not impossible, but you must know what you’re doing, and monitor your investments closely at all times.