Rules and guidelines are critical for all types of investors. One of the key factors that differentiate successful investors from those still struggling is the ability to follow their investing rules. Undisciplined investors who consistently break their own investing rules are certain to eventually give back whatever gains they were fortunate enough to earn from the stock market.
Nowhere else are rules as critical as in the penny stock market. Penny stocks have huge upside potential but they are also extremely risky and volatile. If you deviate from the basic penny stock investing rules eventual failure awaits.
While some penny stock trading rules can be bent or changed, there are a few that are set in concrete. Break them at your account’s peril!
Three Critical Penny Stock Rules
- Honor Thy Stops
The truth is that penny stocks can easily go to zero. That’s right, penny stocks can easily be worthless. This means to honor your stops. Remember that the first loss is always the easiest to take. The volatility of penny stocks makes wide stops imperative, but do not ignore them.
- Trade Only Major Exchanges
There are plenty of lucrative, low priced stocks on the major exchanges. While fraud can exist, its far less likely on a major exchange traded company, regardless of price, than on the OTC or Pink Sheets. You see, companies need to go through a heavy vetting process prior to being listed on a major stock exchange. This fact helps weed out the scammers.
- Watch The Volume
Stocks with less than 100,000 shares per day volume are too easy for promoters to manipulate without rhyme or reason. Be sure to check the volume and make sure it’s over 100,000 per day prior to investing.