Friday, 9 April 2021

Penny Stocks, How To Trade Them & Make Money In 2021

 Source :

Author : A. Lawrence


Are Penny Stocks Worth it?

The term penny stock means any stock that is trading under $5. Because this definition is so loose, there are thousands of stocks to choose from. In 2021, investors have become enamored with the idea of day trading as retail investing has turned mainstream. Often, people will ask, “Can I make a living trading penny stocks?”

The short answer is yes.

But, this also depends on a lot of different factors. The two most important are time and education. There’s no shortcut around educating yourself about penny stocks. If you don’t understand price action, factors that can lead to price changes, and other important insights, you could end up losing your principle investment. 

make money with penny stocks

Additionally, the penny stock traders who profit the most, often tend to be the ones putting in the most time. This means making a watchlist on a weekly or even daily basis and sticking to it. Also, one of the biggest ways that traders end up losing, is by trading with emotion.

Ask any pro trader and they will tell you that it is extremely important to stick to a plan. This means understanding your entry and exit strategy for every position. By setting intraday price targets and taking profit, investors can maximize their chances of seeing returns.

Over the past year, several up-and-comers such as Gamestop Corp. (NYSE: GME) and Zoom Video Communications Inc. (NASDAQ: ZM) have shot up by triple-digits or more. While these are somewhat anomalies, we do see gains like this with penny stocks. So with all of this considered, let’s take a look at how realistic it is to make a living trading penny stocks. 

How to Make a Living Trading Penny Stocks 

How to Pick a Penny Stock to Watch 

Trading Penny Stocks & How to Profit

How Much Money Do You Need to Start Investing in Penny Stocks 

How to Pick Penny Stocks to Watch 

Picking penny stocks to watch involves a careful balance between speculation and fundamentals. Some traders prefer one or the other or a combination of both, and it is very important to understand the difference. Fundamentals are quite self-explanatory. These involve the underlying business of a company. This could include everything from revenue and profitability to cost of revenue, EBITDA, and more. These numbers are always included in a company’s required quarterly and annual operating results. Using fundamentals can be the key to identifying how a company will do in either the short or the long term. 

trading penny stocks

For example, if a company shows quarterly revenue growth, it could be worth watching. However, if it has much more outstanding debt than cash on hand, it could be considered riskier. On the other hand, if a company has little to no debt, high cash on hand, but low revenue, it could also be worth watching. It’s important to use this data to craft a complete financial picture of a given penny stock. 

On the other hand, we have speculation. Speculation means outside factors that are affecting the share price of a company. This could be news, the anticipation of upcoming earnings, or a Reddit forum discussing a company that causes it to trend that day. Speculation is often a key aspect of day trading in penny stocks. And, it’s easy to keep up with all of the news in circulation through outlets like and trading platforms like ThinkorSwim. So as you can see, there is a careful balance between fundamentals and speculation that will ultimately affect the price of certain securities. If traders can identify these movements early and what causes them, the potential for profitability could become much higher. 

Trading Penny Stocks & How to Profit

Making money with penny stocks is often easier said than done. When first starting out, it might seem simple. Find a trending or almost trending company, and hope that it goes to the moon. While this may work a few times, ultimately it will lead to losses. In addition, novice traders can get greedy with their positions, and that greed will eventually get the best of them.

For example, say you’re up 30% in a position. This is already a fantastic return, and at this point, profit should have been taken at several milestones along the way. However, oftentimes investors will get greedy and continue holding in hopes that it will keep climbing. But with penny stocks, large price shifts can often be short-lived and lead to even larger declines. This will have novice traders holding onto their positions, hoping to try and make some of their money back. And as we see, this is hardly the case. 

So to avoid this and make money trading penny stocks, investors need to have a carefully thought out strategy. Some of the best traders in the industry will tell you to make a game plan and stick to it. This could mean taking profit as a stock reaches certain price targets throughout the day or the week.

How Much Money Do You Need to Start Investing In Penny Stocks?

This is a difficult question to answer off the bat because it all depends on the individual investor. But, there are a few ways to think about this question. Let’s talk about one example that investors often use. Let’s say that you make a solid 20% return in a single day. If your portfolio has $1,000, you’d walk away with $200. However, if you have $10,000, you’d clear $2,000 that day. So as you can see, it’s all about scale. The more capital you have, the more money you can stand to make. But, it’s also important to consider risk. 

should you invest in penny stocks

Unless you’re watching your portfolio with an eagle eye, it’s best to consider certain investments as calculated gambling. So if you’re able to lose that same $2,000, then it could be worth risking more capital. However, if you’re trying to make enough profit to pay rent, it might not be the best choice to invest all of your savings. While ideally, a trader would start with around $10,000, $1,000 could work as well; it’s all about how much you are personally willing to risk.

Are You Ready To Start Trading Penny Stocks & Making Money?

If you’re ready to make money with penny stocks, it’s time to start learning how to do just that. Take some time to understand how the market works, why psychology can play a large role, and figure out if you’re a trader, an investor, or something in between.

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Tuesday, 9 March 2021

What's the biggest mistake that stock market investors make?

Source :

Author : Bernie Klinder


In my experience, the biggest mistake stock market investors make is they have no idea how to evaluate a stock.

The reason most retail investors (+90% according to some estimates) lose money is they don’t understand the fundamentals of what they’re investing in. People spend more time researching the purchase of a new car than they do putting the same amount of money (or more) into buying stocks. They buy shares in firms whose names they recognize, brands they like, or dubious stock tips they saw on TV or read about online. They chase investing trends and “hot stocks” because they have a fear of missing out. In a real sense, they are gambling: placing their bets and hoping the stock goes up with no real sense of why it would or wouldn’t.

Even when they perform a cursory analysis, they approach it “bottom-up”: Overwhelmed by the choice of thousands of firms, they pick a stock first, then look at semi-meaningless single points of data like price/earnings ratios and historical prices to justify their choice. “It used to trade at $50 a share, now it’s at $35 - it will go back up!” Or worse, they do the inverse: “The stock price has doubled in the last 3 months, I better buy now before it goes up more and I miss out!”

Instead of “picking a stock” and trying to figure out if it is a good investment, investors need to think “top down”, starting with the economy, industry sector, companies within the sector, and then the company’s outlook. Stocks don’t exist in their own little bubble: They are part of a dynamic ecosystem and influenced by many different inputs.

A top-down approach would look like the following:

What is the forecast for the overall economy? Is the economy growing or shrinking? Is money flowing in or out of the market? It’s easier to make money when the overall economy is growing, but there are market opportunities when it shrinks as well.

What business sectors are rising or in decline? What is the outlook for the sector? Is the sector at its peak, or at the bottom? If housing demand is in decline, buying stock in a home builder is a really bad idea no matter what their financial ratios look like.

What forces influence the sector? What are the leading indicators for the sector? For example, rising demand for copper is usually a sign that construction is picking up. Which sectors or companies win or lose when specific commodities like oil, aluminum, or gold rise or fall in price?

What are the leading firms in the sector? Which are the strongest financially? Who has a sustainable competitive advantage over the others? Which firms would survive a market shakeout? Are their new innovative firms that threaten the old ways of doing business?

Now evaluate the handful of leading firms. (Nasdaq offers a 12-step process for evaluating stocks.) What is the outlook for the firm? Do you believe in the strategy outlined in the annual report? What will drive growth and future earnings? Is it realistic that they can open twice as many stores in a year, or double sales? Is the recent growth a fad and based on short-term demand? If the firm’s market cap is $36 billion, current sales are $4 billion, and the firm lost $900 million last year, what revenue is required to justify the stock price?

Most investors don’t have a strategy or methodology for finding quality stocks. It's 8th grade level math at most, but most people would rather stare at stock charts and try to read the tea leaves than figure out a firm’s tangible book value. Looking at all the data available for a company, they feel overwhelmed, throw up their hands, and just pick something. Then they watch the stock ticker all day as if it were a horse race, fretting over the daily ups and downs, with no idea when to sell.

Successful investors have a strategy and a checklist for evaluating stocks. They know the fair value of the stock, buy when the price drops below that value, and sell when it rises too far above it. They avoid the hype and buy when others panic. Modern stock screening tools make it even easier, giving the average investor access to much of the same data that is used by professionals. You don’t need a PhD to be a successful investor, just the willingness to do a little homework.

Hope this was helpful!

Saturday, 6 March 2021

Why does Warren Buffett suggest we never use leverage?

 Source :

Auteur : Randall Stephens


This is pretty simple, actually.

Let’s look at some Buffett quotes from a 2010 shareholder letter:


"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious.”


"But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices.”


So, clearly Buffett understands the advantages of leveraging, but thinks the disadvantages outweigh the advantages.


Basically, by leveraging you end up risking permanent loss of capital. The more and more you leverage, the greater your chances of capital loss.


Conservative methods worked wonders for Buffett without leveraging, he’s one of the richest men in America. So, while Buffett understand you can make money fast leveraging he knows you can lose it just as quickly. This isn’t as likely with conservative investing and hence why he tells the general public not to do it.


That said, Buffett himself has used leverage on occasion and has flirted with various stock options contracts. However, he does this in limited situations and when the odds are clearly on his side.


Buffett is a master in knowing investor psychology and he knows most people can’t do what he can do. Thus, he tells people to stay away from leverage. It makes the most sense for most people and it makes for a more stable economy.


Buffett is no dummy, he benefits from a stable, growing economy. He also benefits by most people doing the same thing while he does whatever he wants. He can do that, he’s Warren Buffett.


I don't personally know Randal, but his response to the question is 100 % logical to me, hence is why I am sharing this with you. By the way, who do you think you should pay first on payday ??