Some of my friends ask me: "What are the best penny stocks to buy right now, in 2014?"
I have to give pause every time someone new asks me that, simply due to one simple rule that I hold near and dear to my heart and to my trading account: Penny stocks are not long term investments. I know when people ask me that they are dreaming of nailing a scrappy start up company's stock at $1 a share and holding it for 5 years, then selling their shares for $500 each and making a million bucks or something crazy like that.
I don't always feel like telling them the whole deal that I am about to share with you, so you are benefiting yourself by learning the following lesson described in the rest of this article.
Listen folks, penny stocks are absolutely awesome for trading. I said trading -- not investing. There is just too many whipsaws in these types of microcap equities (fancy word for stocks). Now when I say trading, don't mean locking yourself in your bedroom in front of the computer every minute the stock market is open.
Rather I am referring to a manageable approach to trading, that is doable even for people who have demanding jobs that prevent them from having access to a computer during the day. It's a system of identifying a promising pick, buying it, and waiting for it to hit a designated exit point. It's really very simple. It does not completely eliminate the risk of trading penny stocks but it helps to minimize it since you are not blindly buying a penny stock and then holding it for a long time regardless of what it does.
Rather I am referring to a manageable approach to trading, that is doable even for people who have demanding jobs that prevent them from having access to a computer during the day. It's a system of identifying a promising pick, buying it, and waiting for it to hit a designated exit point. It's really very simple. It does not completely eliminate the risk of trading penny stocks but it helps to minimize it since you are not blindly buying a penny stock and then holding it for a long time regardless of what it does.
For instance, if you buy a penny stock and identify an area where you would like to sell for a profit, you sell it
when it reaches that level, be it at 50% or 500% profit levels. On the flip side, you can buy a stock and define an area where you will sell if it drops to certain level. That way you cut your losses before you potentially lose your entire investment. Look, if you want to go out and buy some blue chip stock like GE or a tech giant like GOOG that's fine and you will likely do well over the course of 2010 and beyond. Just don't adopt that mentality for any microcap (penny) stock. I have seen too many people have their trading accounts wiped out because they believed a hyped up story of a microcap stock that was too good to be true.
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