Why Trade Penny Stocks?

Penny Stock are Value!
As a value investor you are looking for stocks that trade for less than they are worth and generally 'undervalued' by the wider investing community (eg. You are looking for a share worth $10 trading for $5). Your job is to be one step ahead of the herd and get there first.

You see most investors are like sheep. They see a good opportunity but do not have the guts or insight to invest, so they wait, and wait, and they wait. They wait so long that by the time they have summoned up the courage to invest, the share price has already shot up and they have missed out on huge profits.

They follow the herd but as a value investor you are going to find that company first and get in there before anyone else (while the share price is low) and the company still unloved and undervalued. Once the herd start to follow, it's your turn to start planning your exit and when to sell so that you can make as much money as possible and banking your profits for the next venture.

The amazing Warren Buffett favourite holding time (ie. How long you keep a share) is forever. Mr Buffett, a truly legendary investor believes in find good quality stock, a sound company that is going to stand the test of time. You should never have to sell a good holding. In an ideal world, we should all be acting like football scouts for that next big idea that will make a company a global success.

In reality (and I hate to be pessimistic) it is very unlikely that you will find the next Google, Microsoft or Apple amongst the OTCBB listings. With so little information available (and the difficulty distinguishing fact from fiction), finding those rising stars is tough and usually they will not even go to the OTCBB to raise capital. This isn’t all bad news. In fact it means you can look to profit in a much shorter space of time, take your profits and run, perhaps within the space of a couple of hours.

As a penny stock investor it is your job to identify the trends that will catapult your target stock price upwards. You exercise caution to make sure you are right and the odds are in your favour, analyse the trends and buy in for as little as possible. Now you watch and wait, planning your exit. So many people focus on the ‘buying’ of stock when it is the ‘selling’ of stock that will make or break you. Identifying an exit strategy is key component of any trader (and well covered in the Trading Master Plan).

Within the space of hours or days it is possible to double and triple your money and this is the key attraction to Penny Stocks. With a $1000 you might buy nearly 100 stock of a globally successful company and they are very unlikely to double. A $1000 spent on penny stock goes a lot further and it is much more realistic for a smaller company trading at $0.50 to double in value. That is why we trade penny stock.

This video will show the fundamental skills behind finding great stock