Stock Investment Strategy – Are Penny Stocks Right For You?

Penny stocks are named based on literal as well as perceived value. Penny stocks aren’t always valued at a penny per share. Some may be as high as a dollar. Many people shy away from them because they appear to offer the lure of getting something for nothing. If the amount of money that you have available for stock trading is limited investing in penny stocks could be a smart stock investment strategy for you.

For example, the recent closing price for Google was $438.77 per share. To purchase 100 shares you would need over $43,000 available. If Google went to $440.77 per share your total earnings on your $43,877 investment would be a mere $200 or a 0.4% return on investment.

On the other hand if you purchased 1000 shares of a stock at 10¢ per share, and that stock went to 15¢ per share, your $100 becomes $150 or a cool 50% profit. If that 10¢ stock instead went to a dollar or even $10.00 per share, your earnings would look awesome indeed. You do the math.

Penny stocks often have extremely high trading volumes. When an investor can buy such a huge number of shares with $1,000 or $10,000, it can leave the volume patterns for a penny stock looking similar to one of the S&P 500. This high trading volume can also lead to very high volatility. A stock may reach an all time high and stay there for only minutes.

As with any stock, you should always do your own homework and trading experts seem to agree that if you do trade penny stocks you should probably do that homework twice. Know the profitability of the company. Be very aware of the trends associated with this stock and its industry. Make a game plan and stick to it. Buy a stock only at the price you intended to buy it and sell it at the price you intended to sell it, always protecting yourself with a stop loss order to prevent you from losing everything if the price happens to crash.

As always, never ever let emotion enter into your trade. For some people, penny stocks offer the same excitement as of nickel slot machine. And many of these people walk away from penny stocks as broke as when they leave those nickel slot machines.

I tend to receive a lot of e-mail stock tips about penny stocks. I have never purchased a stock based on one of these tips alone. There were a couple of times when I looked into the company and it appeared that I could make a solid trade. However, my buy price never came around so I didn’t buy the stock.

As part of your all overall stock investment strategy you may want to consider putting some of your investment money into penny stocks. Keep the amount of money limited-not more than 10% of your total trading cash-and look over every stock trading opportunity with a fine toothed comb. As you develop skill and experience as a stock trader you will come to know the fact that the deal of the century tends to come up several times a day. You just have to know how to find it.

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Stock Investment Strategy Index Tracking Stocks

Any successful stock investment strategy should focus on maximizing the amount of money you make. After all, unless you’re trying to take over a company, the only reason that you trade stock is to make money. One of the best ways to maximize your effort when it comes to investing stock is to trade index tracking stocks.
Also known as exchange traded funds or EFT, these new stocks on the block give you the leverage power to trade stock for entire industry with one symbol. This means that one single share of an index stock is like buying a portion of the dozen to over 10,000 stocks that make up the index.

Here are three popular examples:
Dow Jones industrial average: EFT symbol DIA
Also known as diamonds, this index stock represents all of the stocks which make up a Dow Jones industrial average. So when the Dow goes up, so does the stock price for DIA. Any of the other trends also apply to this and any other index stock.

S&P 500: SPY
Trading $100 worth of this index stock is like buying a portion of the 500 largest companies which make up the S&P 500. They’re the 500 largest companies for a reason and trading an index stock which contains 500 companies can help some people take the emotional attachment to an individual company out of their investment equation.

NASDAQ: QQQQ
The National Association of Security Dealers Automated Quotations is the largest screen-based equity securities trading market in the United States. Previously traded under the symbol QQQ, this EFT gives you a lot of trading power while eliminating the volatility commonly associated with trading stocks for an individual company.

If you are new to the concept of index tracking stocks, you should consider studying them and adding one or more EFT to your stock portfolio. You can find index tracking stocks that cover any industry including the Internet, oil, pharmaceuticals and health care, real estate, and manufacturing. There are even index stocks that cover every public company found in a single country. If you’re interested in investing in a country like Mexico or Taiwan, trading an index stock which covers all of the securities for one of those countries may be the easiest way to go.

Index stocks are a relatively new trading vehicle. They most likely owe their existence to the information technology available today. The stock price for an index tracking stock is a real time reflection of the accumulated value of all of the stocks it contains. While this is also true of mutual funds, index tracking stocks are faster moving and you don’t pay anyone to maintain a portfolio of securities. You simply buy and sell the stock as you would any other security.

The convenience and ease of use of these exchange traded funds have made them very popular. Their inherent diversification allows you to invest in an entire industry through a single trade and for many people that makes an EFT a wise element of a smart stock investment strategy.

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Stock Investment Strategy – Take Emotion Out of the Game

The easiest way to derail a good stock investment strategy is to bring emotion into the game. Stock securities are little pieces of a company. While human beings are very emotional creatures, the little slips of paper that represent the countless stock trades occurring every single day have no emotion. Furthermore, large institutional investors, who have the largest influence on a stock price because of the size of their trades, operate by a series of trading rules that once again have no emotion as part of the equation.

For you and I, trading stock is partially a psychological game. It’s a battle between our ability to make rational decisions and our tendency to get caught up in emotions of fear, greed, and a desire to be right. Without some fancy neurological operation or disfiguring industrial accident, emotion is a part of the way all of our brains operate. Therefore, it doesn’t do any good to pretend that we don’t have emotion.

Instead, learning how to recognize emotional response is the key to controlling it. This is especially important when money and tight deadlines stare you in the face. To practice recognizing emotions, keep a small journal and as you look at each stock price in your portfolio note any emotions that you feel when you first see the price. Be honest with yourself because this is important. If you a saw price drop below your buy price do you feel a pang of dread in the pit of your stomach? Do you feel yourself justifying why you bought the stock in the first place? Is this followed by thoughts of why you should hold on to the stock to prove to yourself or someone else that you were right?

Rational thinking follows emotional responses. However, rational thinking is also colored by emotional responses. This is why it’s important to recognize when you have these emotional responses, whether good or bad, so you can put yourself back on track and objectively evaluate whether or not you should stick with the stock or get rid of it.

Emotions can also play with your head when the stock is doing well. In my early days of trading I had a stock skyrocket and I was elated. I would look at that one stock and think about how it proved that I knew what I was doing. Rationally the math told me that I had already made plenty of money and it would be a great thing to sell the stock immediately and take the cash.

That’s not what I did.

Instead I rode the stock through the end of the day and into the next morning. Before the markets opened that next day, a press release had come out about this company and while the news wasn’t horrible, it wasn’t positive either. By the time I was able to trade stock that day, major institutional investors followed their standard policy and dumped the stock, driving the price down. My emotions took hold on this loss as well. To make a long story short, what would’ve been a great financial gain became a substantial loss. Institutional investors are sometimes timid about buying back into a stock and once they have started the trend that drives the price down many private investors smartly follow as well.

Looking back on this particular stock I would’ve had to hold on to it for another year just to break even.

This was a tough lesson to learn, indeed. And that’s why emotion should never be a part of your stock investment strategy.

If you need money now, like I mean in the next hour, try what I did. I am making more money now than in my old business and you can too, read the amazing, true story, in the link below. When I joined I was skeptical for just ten seconds before I realized what this was. I was smiling from ear to ear and you will too.