First, lets take a look at what kinds of businesses trade on Pink Sheets or the OTC BB.
Stocks that trade over
While it's not impossible that they could see better days later on, the chances are stacked against them. Its generally best to prevent trading these stocks. Wait until the stock starts to rally, if you feel the temptation is too much. You are going to get hurt, if you attempt catching a falling knife.
While several firms will declare an IPO, many others will start trading off as a penny stock
Lets look at some suggestions to help the penny stock dealer avoid making errors that are expensive.
Due Diligence
Stocks recorded on the Pink Sheets do not have to file quarterly or yearly statements. This makes beginning your due diligence challenging. Frequently, the info is sketchy at best, and usually, its one-sided. You should anticipate a stockholder to say things that are great about the business. The company would n't be holding it, if they did not have possible. Or, the company might be expecting expect to talk you into purchasing and to unload their shares.
Quarterly and annual statements file. You will find penny stocks lose cash, whether through research and development, or managerial incompetence. The key will be to identify the firms whose management has a record of delivering on the' plan, making money, or at minimum, and falling expenses.
Being a real writer places me in an one-sided place when talking to penny stock newsletters. Here is what I will tell you: be cautious! Assess for the sum in the disclaimer the newsletter has been paid to take the profile. Are here being paid in shares or in cash? Does that mean that any stock should be avoided by you where IR professionals are being paid by the business ? No. Only remember they're selling a narrative, and if they sell the narrative to other investors, they'll develop.
Look at the track record of the penny stock newsletter. Have the profiled winners? Do the say the hoopla, or state the facts? Do the additionally offer stock profiles that are outstanding? If the do, you will probably discover that they want to ensure they aren't passing a poor stock your method simply to pay the invoices, and do their own research in all businesses.
If there is an organization paying an IR professional cash to profile a stock should you prevent it? Believe of the payment as marketing. The business is being promoted by them, and attempting to get exposure. Like any business, the one and only way to obtain exposure is through some process of marketing. Thus is a paid profile dismissed by nt as ballyhoo. Pay attention, although keep this in the rear of your head when you are reading the profile.
Word of caution: Be very careful about investing in a pump and dump.
Volume
You must find a way to purchase and sell enough shares to lock in your gain, or protect your capital, if you need to make money. Who will purchase your shares? if you have awful news If the volume is not high, stay away. The volume's not worthwhile. If you're feeling that strongly about possessing the business, consider working out a deal and contacting the business.
Buy Results, Not the Narrative
Chances are, if you purchase the hoopla, you'll become the last one to possess the shares, while their standing has been sold off by everyone else. Look at an organization, look and verify if they've followed through on that strategy. Were the company successful? Did the company bring an item to market punctually? Unless you're viewing your trading display every second of the trading day the ballyhoo might allow you to get an instant pop, yet, you are going to miss out.
Size issues
There are thousands upon thousands. While this may not look like much, remember that its not uncommon for a $0.10 business to drop to $0.05. Keep your losses to the absolute minimum. You're upward, and if the business has done nicely take your gains or add to your own location, and make sure you reset your stop loss in order to protect your preceding gains. Capital preservation is the key.
Have an idea prior to buying. What exactly are your reasons for purchasing. What's your exit strategy? Where is the stop loss? At what point are you going to take your gain? Write these replies down before you place that purchase order.
Recall, you're taking risks that are bigger than you would if you had been buying shares. That danger can be rewarded with yields which you cant get with a bank stock, or, it's going to be met with a poor taste in the mouth area and a big loss for buying penny stocks.
Do your homework, do not believe the hype, and shield your capital.