The Nature of Penny Stocks For anyone new to investing in penny stocks, you should first be made aware of
differences between these micro-cap stocks and more conventional blue-chip and mid-cap investments. Unlike buying shares in a large, stable company like Ford or IBM, you are dealing with speculative investments.
Penny stocks literally trade for pennies per share, or for as much as a couple of dollars. The beauty of penny stocks, of course, is that sometimes they ‘grow up’ and become mid-cap stocks, multiplying in value hundreds of times over and making many people very wealthy.
With penny stocks, also called micro-caps or juniors, you will see much greater price volatility, and thus greater and quicker gains and losses in asset values. It is precisely this volatility which draws investors to junior markets, as one good pick could make you hundreds of times what you could ever make on larger markets.
Of course, there is more risk than buying bonds, blue chips or defensive stocks - but this added risk is tempered with possibility of making big gains.
Most penny stocks, but not all, are resource or technology companies who initially sold shares in an effort to raise money for exploration or product development programs. Many of companies have large debt loads and are not necessarily making more money than they are losing.
However, it is potential of a major, or even minor success in their quest that often incites dramatic price climbs, and this is where their value lies.
Profit Potential
Modern Strategies Inc. owner of http://www.pennystockinsider.com, has been in business of researching penny stocks for many years, and has become effective at uncovering best small cap investment opportunities and most rewarding profit situations in penny stock markets.
There are several ways to profit from penny stock investments. Modern Strategies Inc. has uncovered most highly rewarding investment situations.
Promotional Stocks - These issues may or may not have much actual value. Promoters generate interest in these types of stocks in an attempt to drive share prices higher. The promoters own great amounts of shares and so they make more money higher share price travels. Eventually, they sell their holdings into promotion and generate great personal profit. Then they move on to next project, leaving original stock and all its investors behind. Without work of promoter, promotional issue soon comes crashing down.
These are type of stock investor hear horror stories about, because many people often lose a good deal of money when they are naive about promotional ploys. However, getting in on a promotional stock early in its life cycle, and keeping an eye on actions of promoter can be very, very rewarding. It's like having a full time stock promoter doing everything in his power to get share prices of stocks you own to go through roof, and investors who get in early can go along for ride!
Technical Precursors - Often technical analysis can reveal patterns in trading cycles of penny stocks. Sometimes these patterns illustrate excellent buying opportunities, where underlying stock has a high probability of moving up strongly, and only a low probability of declining in value.
In addition, there are sometimes situations where several positive technical indicators combine at once to reveal that an issue is very likely to increase strongly in price over a short time frame, indicating that particular issue is has excellent investment potential.
