Penny Stocks - Pros and Cons

Investors usually try to avoid penny stocks, but this is because they do not understand them. Penny stocks can be a great way to make quick profits, but even faster losses if you are not careful. If you are going to be trading penny stocks, you need to remember to trade and not to invest. I can not even count how many times I have read that XYZ stock will be at 1 dollar within the next year.

People get caught up in the hype of making millions and the stock ends up taking a dump, making the investor very unhappy. You should be trading these stocks anywhere from a day to a couple weeks and you can make quick profits by just looking a chart while using some technical analysis.

Pros of Penny Stocks

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  Highly Volatile - It is not unusual to see penny stocks move 30-40% in a day, some even move 100+% in a day.
  


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  Low Investment Capital - You can start with $1000 and if the price moves just 10%, you have made $100.
  


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  Quick Profits - Since these stocks move so quickly, you can be in and out of a trade within a day and make some good money.
  

Cons of Penny Stocks

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  Emotions - Your emotions can get in the way of you thinking clearly. You can experience excitement, greed, sadness, and anger all in the same trading day and it usually happens in that order.
  


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  Scams - There are plenty of scams out there, but that is why we trade and not invest because we are in and out so fast that it will not matter if the stock is a scam.
  


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  Quick Losses - Just as fast as you can make quick profits, you can make quick losses even faster.
  

If you are smart and use technical analysis when trading penny stocks, then you should be way ahead of the so-called "investors" who are gambling their hard earned money away. You can lose your money quickly because these stocks swing in price so fast, so keep your emotions in check and set predefined entries, exits, and stop losses before you buy your first share. Not only should you set these predefined price points, but you should follow them too!


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