Investing in Top Penny Stocks: Why, When, and How?

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Are you interested in investing in top penny stocks but don’t know where to start? This guide will provide you with all the information you need to get started. Learn why penny stocks are a popular investment, when is the best time to buy, and how to choose the right stocks for your portfolio. We’ll also give you some tips on how to find the best penny stocks to buy.

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When it comes to these cheap stocks, there are plenty of misconceptions. For some reason, many people think that penny stocks are a scam or that they’re only for amateur investors. But the truth is, investing in penny stocks can be a great way to make money if you know what you’re doing. So, if you’re interested in learning more about penny stock investing, keep reading.

Why Would Anying Look For Penny Stocks To Buy Or Invest In?

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There are plenty of reasons why someone wouldn’t buy penny stocks. They’re risky; companies are small, many are failing or just getting started, lack capital, and tend to raise expensive money. This is where risk plays a role. But with all of the reasons people choose to avoid penny stocks, others find it an opportunity to make money.

Some see the “start-up” stage as a risk; others see it positively. The ability to see a company grow from the ground up can create the potential for a big payout if they execute on their mission (or investors rally behind particular names).

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Though lower prices can lead to higher volatility, it also offers a significant upside if the stocks take off. Just look at companies like GameStop (NYSE: GME), AMC Entertainment (NYSE: AMC), Nio Inc. (NYSE: NIO), Plug Power (NASDAQ: PLUG), and even Penn National Gaming (NASDAQ: PENN). At one point in time over the last few years, each was trading at levels below $5 a share.

When Is The Best Time To Buy Penny Stocks?

When is the best time to buy penny stocks? There’s no particular time of day or year that you should or shouldn’t buy penny stocks. One of the beauties of trading these lower-priced names is that they generally move unrelated to broader markets. Even during the massive sell-offs in 2020 and 2022, in a sea of red, there were several penny stocks to buy that surged hundreds of percentage points in a single day.

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Realistically, it comes down to a particular strategy that will dictate when you will trade penny stocks. Depending on your goals and how much money you’re willing to spend, the strategies will vary.

The most common strategy is “day trading” or “swing trading.” With this strategy, you aim to make a quick profit by buying low and selling high within a short period (days or weeks). If there’s one thing to learn about the market, it’s that nobody knows what will happen next.

The best way to approach penny stock investing is by having multiple strategies in place at all times. When one falls through, use another until things turn around again. As long as you keep track of your investments and make educated decisions, there’s no reason why you can’t have success with top penny stocks.

How To Invest In Penny Stocks

Investing in penny stocks is one of the most lucrative investments you can make if you know what you’re doing. They are cheap, plentiful, and unstable – these are what makes them so profitable under the right circumstances.

Before you can start investing in penny stocks, there are a few things to consider. First off, how much do you have to invest? It’s important to know this before you jump headfirst into penny stock trading. There are dozens of different strategies for picking winning stocks, but it will be your money that goes into them. If you’re investing thousands of dollars, the strategies and tactics that we’ll discuss later should be taken more seriously.

Also, consider what your financial goals are. Do you want to invest for retirement? Do you need to make a quick buck by next week? Or do you want to learn about penny stocks? Like all other investments, there is no “best” investment strategy. It’s entirely up to you how much time and money (if any) you would like to put into it.

Now that we’ve got that out of the way let’s get down into the nitty-gritty of penny stock trading: picking winners and losers. I’m not going to go too deeply into this topic because it warrants its article, but I’ll give you some tips on how to sift through the noise & identify top penny stocks.

Finding Top Penny Stocks

The first step is to choose the right stocks. For penny stock traders, this comes in two forms:

1. Find penny stocks with higher trading volume (higher liquidity)

2. Choose penny stocks that have a strong uptrend (rising penny stocks)

This is an important first step because there are thousands of different penny stocks to choose from. If you’re not careful, it’s easy to get lost in the noise and end up buying poor-quality or even “pump & dump” (P&D) penny stocks. By narrowing down your investment criteria, you will make better decisions and find high-quality winning stocks more quickly.

Picking winning penny stocks is just the first step. Even if you buy high-quality stocks, they could still turn into losers. If you want to get ahead of other traders and remain profitable, you must stay up-to-date on your investments at all times.

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To do this, you need to define your own trading strategies on when to buy or sell penny stocks. It’s important to stay up-to-date on the latest news and even rumors if you want to make more informed decisions. Some traders even place trades in advance on speculation of a particular event, making for much riskier situations.

Like anything else, there is no “best” strategy for picking top penny stocks. All methods have their advantages and limitations. It all comes down to how well they fit your investing goals and risk tolerance.

Fundamental Tips For Investing In Penny Stocks

In this section, we’ll review some of the best penny stock investing tips and how they apply to your list of penny stocks. Choosing a new company can be a daunting process, but it doesn’t have to be. Fortunately, there are plenty of unique companies worldwide waiting to be discovered by investors. Here are a few things you should look out for when determining if any are suitable for your portfolio:

The Company & Its Products/Services

Most serious traders rely on finding well-established companies with a long market history. In general, traders invest in penny stocks that have positive returns for at least several years to account for volatility and market conditions. If it hasn’t been around very long, there’s no way of knowing what will happen in the future. Of course, there are exceptions to this rule but they’re few and far between.

Company Management Team

Although your decisions shouldn’t rely on just one factor alone, it’s critical that you trust the management team behind penny stocks. As an investor, you’re putting your money into someone else’s hands. So make sure their track record is solid enough to justify investing alongside them.

The Company’s Financial Position

Every company, including penny stocks, is expected to report its financial position quarterly and annually. This includes reporting on earnings, revenue, debt, and cash flow. Tracking the changes of these numbers over time will give you a good idea as to whether the business is growing or slowing down, which can influence its stock price performance. You should make sure that a company has enough money – aka “capital” – for its operations & expansion plans before investing your money with them.

The Penny Stock’s Financial Status

Earnings per share (EPS) is a financial indicator that measures profitability. Comparing a company’s current price with its EPS after applying the relevant multiplier will give investors a good idea of whether penny stocks are currently undervalued or overvalued.

The Penny Stock’s Price & Volume History

Many investors like to see how the stock price has changed over time when analyzing penny stocks. Charts can be useful for identifying patterns and giving a good idea as to where a company is headed in the future. Looking at a chart will also show you if there was a previous jump in share price on this specific penny stock, which could indicate whether or not it may happen again. Be sure to check out our penny stock charts page.

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Penny stocks are largely known as being high risk but this doesn’t mean that they’re completely devoid of potential rewards. A few different strategies for this can help with lighting the higher risk. Diversification is one way that can help. Looking into spreading out an investment over several companies, in theory, might see certain investors benefiting from high-flyers which can make up for the ones that dump lower.

Another way, which might be more useful when it comes to penny stocks, is adjusting the buying process. For example, once top penny stocks are identified, break up your total purchase or investment into different tiers. A “starter” position might be worth 25% of your total planned capital. Thanks to your starter, if the stock continues rising, you can add to your position and ultimately have a lower average price. If the trade doesn’t go as planned, then you’d only take a loss on a smaller position than a full one.

Conclusion

After reading this, you should know some of the basics of investing in penny stocks and which criteria to look out for. Always remember:

  • Choose quality penny stocks over quantity. A few high-performance companies are much better than holding 10 different low-quality / low-performing penny stocks.
  • Know when to buy penny stocks and when to sell top penny stocks for maximum returns. Depending on your goal, you’ll want to hold onto your penny stock investments for either weeks, months, or even years.
  • Never invest more than you can afford to lose. Penny stocks are very volatile and it’s easy to get caught up in the excitement. Nobody knows what will happen next so make sure not to risk more money than necessary.

If you’re looking for more (and new traders probably are), you can check out more of our beginner articles via the links below:

  • 10 Secret Ways To Find The Best Penny Stocks To Buy In 2022
  • Penny Stocks Definition & 3 Trading Strategies To Master In 2022
  • Making Money With Penny Stocks During a Stock Market Crash
  • Penny Stocks & 5 Stats To Know If You’re Trading Or Investing In 2021
  • Investing In Penny Stocks in a Bear Market, 3 Tips and Tricks
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