Shocking Pink

January 11th, 2010 admin Leave a comment Go to comments

Shocking Pink

Penny Stock Trading - Know These Shocking Facts!

Now, many people read stories of how to get rich with penny stocks. You must read the story of how a stock jumped from let's say $0.1 to around $100 in a matter of few weeks. This is a whopping 1000% return on your investment. But hold on, the problem with most of these stocks is that most of them don't have a liquid market. Liquidity dries up in penny stocks quickly. There are stories of pumping and dumping.

Penny stocks are usually defined as those stocks that are priced under $5 per share. Penny stocks are not traded on the US Stock Markets but are listed on the pink sheets. What this means is that most of them don't pass the strict registration process that a normal stock has to pass before being listed on New York Stock Exchange (NYSE), NASDAQ or Amex.

Penny stock trading can be profitable. I am not disputing that fact. But there are stories that circulate that most of the penny stocks get hyped in email newsletters that many people subscribe to with a picture of this stock jumping from let's say $0.15 to $15 in a matter of few days.

When most of the subscribers read about a great money making opportunity in the making, they get excited. Without any due deligence, they buy that penny stock on the recommendation of these newsletters. Now, most of these penny stock newsletters have build a list of thousands of subscribers over time. You can well imagine, when thousands of people try to buy the same penny stock at almost the same time, the price jumps. Viola, the penny stock price jumps as predicted. This impresses many novice investors.

In a day or two, the buying spree is over. The penny stock price has reached it's top most level. Now, there are no more buyers left in the market. On a slight selling pressure, the price rapidly starts to fall. It falls like a rock. Most of the novice penny stock investors are stuck now. The liquidity in the market has dried out. The price spike was the result of hype created by the newsletter. This is also known as, "Pumping and Dumping." The price spike did not last more than a few days. As it was not supported by an fundamentals or technicals, it was unreal. The company had the same fundamentals that had supported a low price of $0.1. Nothing had changed. Once, the selling starts, liquiduty dries up and many novice investors lose their investment along with it. They mislead them by thinking that they had held the penny stock too long.

The moral of this story is that donot believe your brokers or investing newsletters. Learn to become an independent trader. An independent trader takes the clue from different sources but in the end does his or her own analysis of the fundamentals and the technicals to judge whether he or she should take the bait or not. Forget the saying, " Buy the rumor, sell the news." Always do the research. The price rise in a penny stock if supported by strong fundamentals like launch of a revolutionary product by the company should indeed be capitalized upon. In such a case, the penny stock price rise will stay as long as the fundamentals support them. Once you have done your research and due deligence, you should not hesitate to invest in a penny stock if you are convinced. But never ever try to follow the crowd blindly. Jumping on a bandwagon will only make you lose your shirt in the end.

As compared to stocks or for that matter matter penny stocks, currency markets are huge, It is being said, that currency trading is going to make many millionaires in this decade. You don't need a large capital to start currency trading. You can open a mini account and start trading with $500. There are many good forex signal services in the market that you can use to trade forex. It is as simple as reading an email. There is no big one trade. Always remember, you grow your wealth slowly incrementally by using the power of compounding!

The Pink Panther - Episode 08 - Shocking Pink [HQ]