How to pick winning penny stocks
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How to pick winning penny stocks
It’s common knowledge that when companies start up newly, they offer their stocks at low prices per share with the hopes of pushing the price higher of things pan out well. Considering the number of interests that penny stocks have drawn to themselves in recent times, traders are always prompted by questions about the best penny stocks for 2021.
To make the right choice of penny stocks 2021, one must grasp what penny stocks are, their advantages and disadvantage, as well as their limitations and risks. If you are not sure about all these aspects of penny stocks highlighted above, not to worry because we have got you covered.
What are penny stocks?
Prior to the modified definition for penny stocks by the United States Securities Exchange Commissions (SEC), penny stocks are considered stocks whose price per share is less than one dollar. Today, penny stocks now include stocks that are traded for less than five dollars per the SEC’s decent definition of penny stocks.
Also known as OTC (Over-the-counter) stocks, micro-cap, small-cap, or nano-cap stocks, penny stocks are often traded outside major exchanges. They are mostly traded electronically or over the counter. Hence the name OTC stocks. For clarity and to have everyone on the same page, you can think of penny stocks as stocks that are traded on pink sheets or through Over-the-counter Bulletin Board (OTCBB).
Top tips for trading the best penny stocks for 2021
Recall that Penny stocks are stocks of companies that have small market capitalization and are yet to develop a robust track record. Because of the aforementioned factors, penny stocks are widely considered as highly speculative investments. If you are looking to get started trading penny stocks in 2021, it’s always best to start with penny stocks because they will give you a feel of the financial markets without putting much of your money at stake.
For beginners or fort time stock traders, choosing the best penny stocks 2021 should be your primary concern. Why? Think about it. You don’t require large capital to invest in the best penny stocks in 2021 and neither do have to lose sleep over losing your money to scammers because like every other security, penny stocks are also under the supervision of the United States SEC.
Another benefit of trading penny stocks 2021 is their potential to yield huge returns within a short time. However, penny stocks don’t always go as planned because their growth is also impacted by market forces such as market sentiments, volatility, and price action. As such, traders are always advised to incorporate adequate risk management in their trading strategy. That way, you won’t have to worry about losing all your investments overnight if the markets go against you.
What are the possible risks of trading penny stocks as a beginner?
Before trading penny stocks on Robinhood or any other trading platform out there, expert traders advise that you make time to understand how to trade penny stocks and the risk factors to watch out for while trading penny stocks 2021.
To save yourself from dipping your fingers into the pool of wrong penny stocks, it’s always best to steer clear of OTC penny stocks until you have attained a certain level of mastery to distinguish between legitimate offers and potential rip-offs. The reason why beginner penny stocks day traders are advised to sit out OTC stocks is because of the low availability of buyers (and participation from investors) and the limited regulation in the OTC markets.
It’s no longer news that quite a lot of stocks that are quoted or sold on the OTC markets are largely from companies that are either unwilling or unable to meet financial documentation with the relevant regulatory bodies. Other OTC stocks find it difficult to keep maintain the value of their stocks. They could also be large companies that have filed for bankruptcy and are trying to get back on their feet and or find their place in the stock market.
Redefining penny stocks
Regardless of your trading experience, it’s always best to go for penny stocks 2021 that are listed in major exchanges such as the NYSE and NASDAQ. However, if you are confident enough in your trading strategy and are sure about your risk management, you can take on Over-the-counter stocks.
While you are at it, bear in mind that penny stocks are highly speculative investments and require discipline and proper risk management to be a successful trader. In today’s securities market, stocks that are priced between one dollar and ten dollars are often regarded as risky investments by a lot of traders. And this can be seen in companies that are starting up in the Biotech and Fintech sectors.
If you are going to invest your hard-earned money on any investments, including penny stocks 2021, you must have some reasonable level of assurance and confidence that your investments won’t vanish overnight. Hence the need for proper risk management. However, you must have in mind that no trading strategy is correct 100% of the time. Every experienced trader understands that losses are part of trading; all you need to do is learn from them and block every loophole in your trading strategy/plan.
How to find the best penny stocks to buy
While the best penny stocks 2021 offers a good shot at making decent earnings, don’t be fooled into thinking that day trading penny stocks is a walk in the park. Trading penny stocks is a lot more difficult for day traders who decide to “wing” their trade execution.
One way to make your penny stocks day trading journey a smooth one is by signing up for the day trading chartroom and mentorships. That way, you will be better equipped to spot the best penny stocks 2021, execute trades your trades like a pro, and of course, become profitable.
With proper penny stocks day trading mentorships and education, you would have shortened your learning curve and figure what trading system suits your strategy. Regarding how to find winning penny stocks for 2021, here are tips to help you get started.
Identify penny stocks with a high probability to make a strong run
Your first assignment is to spot penny stocks that have a high probability of soaring and pushing through the ceiling without losing steam. However, such stocks are not always easy to fish out. To make your job a lot easier, you can employ top-tier stock scanners to help you scout for stocks that meet your specific parameters. As such, giving you an edge over other day traders.
Leverage both technical and financial analysis
Leveraging technical analysis and financial analysis in your trading strategy and completing the duo with the penny stocks for 2021 scanners is a formidable tool to behold. Fundamentals will help you stay on top of speculations and major events that are capable of rocking the market. Learning strategies like the red to green pattern and flag patterns are also great tips to improve your chances.
On the other hand, technical analysis involves using mathematical tools to evaluate price actions, identify key levels, and the overall market structure. Rounding off on finding the best penny stocks for 2021, bear in mind that the share price doesn’t always reflect the quality of the company. Other factors to consider include the number of shares that are available, the shared liquidity, and the risk of dilution when there are a lot of shares outstanding.
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