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Penny stock trading is certainly a lucrative opportunity to make money even if you only make a small initial investment…several people have done it after all.
But if you’re not careful, all it takes is one bad investment to bring everything crashing done. Many people enter the penny stock market with much excitement and anticipation, only to pull out immediately once they see the first sign of red.
The reality is that penny stock trading can only be lucrative if you know what you’re doing, and you can start learning by finding out about the top newbie mistakes that you must avoid at all costs.
Here are the top 4 mistakes newbies make when trading penny stocks:
1 – Not Setting Price Targets
You should never purchase any stock without having a specific price target where you will sell to make profits. The reason why price targets are so imperative is to avoid getting too greedy.
Once you begin making profit, it can be easy to hold onto your investment without selling because of the perceived opportunity to make more money. But the reality is the price of a stock can change and decrease rapidly without warning. It’s better to play things safe by selling the moment you hit your target.
2 – Buying Due To FOMO
FOMO stands for ‘fear of missing out.’ New penny stock traders will often invest in a stock that they see rising rapidly in price, only for the price to not go up much further after they’ve bought and then to dwindle afterwards.
Purchasing a stock while it is rising is never the right investment strategy. Rather, you need to learn how to look at chart indicators to predict which stocks have the greatest probability of going up in the short term.
3 – Investing More Than You Can Afford
Here’s a golden rule for investing in penny stocks, especially if you’re new with limited experience: only invest what you can afford to lose. Even if this only means $500, $100, or just $50, if that’s all you can do then that’s all you can do. Besides, if you’re new to trading anyway, making a smaller investment with less potential for loss would be smarter.
4 – Not Doing Research Beforehand
Deciding to trade penny stocks and then starting to trade on the same day is a terrible idea that is almost guaranteed to cause you to lose money. Rather, spend at least one to two weeks studying the charts intensely to see how they work and look for patterns, watch YouTube videos of professional traders, and even go as far as to find a virtual mentor who you can follow.
Penny Stock Trading Mistakes To Avoid
All in all, these are the top four mistakes of trading penny stocks that you will want to avoid at all costs. The good news is that by avoiding these mistakes, you set yourself up better for success.
