- A good rule of thumb for buying penny stocks is to avoid any good tips you get from those who seem to believe they have a moonshot for you. Often such tips will cause you to lose large amounts of money. You'll stand a better chance by researching stocks before you buy. Many large companies were once penny stocks. However, these are exceptions, not the rule. Most people usually don't invest for the long term with penny stocks. As with any other investment, always consider your financial goals and tolerance for risk.
- Penny stock prices fluctuate often, so there are gains to be made. However, timing is important. Because you can lose money, you may want to consider a few financial safeguards. Along with research on companies, which is available online, you can look into trading analysis software. For a fee, you can talk with a professional for guidance on choosing specific stocks. Penny stocks often lack trading volume, so they are more difficult to pick. Look for stocks that have decent investor interest and volume, so you are better able to track quantifiable price points and patterns. Here are some examples, for illustrative purposes only.
- Within a three-day period, mining company Converge Global Inc. (CVRG) more than doubled, only to return to its original price. If you had been in on the first day, you would have realized a return of more than 100 percent. However, by the third day, many were suggesting it was going to rise even more. So those who bought after it doubled quickly lost money.
- Biotechnology company Advanced Cell Technology Inc. (ACTC) is a penny stock with an incredible amount of trading volume. It's one-year chart shows that within a few days, its price nearly doubled, only to return quickly to near its original price.
- DryShips Inc. (DRYS) is a global shipping company that many don't realize is technically a penny stock, as it has traded above $100 a share. It's an established company that could return to a much higher value. However, it also has volatile price swings.
