How to Make Ginormous Returns in the Penny Stock and Micro Cap Trading Environments
The penny stock and micro-cap trading environment gives investors the opportunity to make enormous returns on their capital often within a week or less.
The excitement that an investor can feel after analyzing a penny stock or micro-cap stock and riding the crest upwards as the emerging company grows in profits and stock price is exhilarating.
The challenge created by this very rewarding endeavor is to receive keen fundamental and technical advice, and use practical and robust risk management techniques.
Finding an undervalued gem in the emerging penny stock arena is easier said than done.
There are many stocks available that are low in price, but that does not mean that they are undervalued.
To determine if a stock is undervalued, an investor needs to perform a good amount of homework to evaluate the fundamental value of the company on which he or she is doing diligence.
To mitigate the time and effort needed to find a good company that is undervalued, many investors rely on trustworthy investment analysts that concentrate on the penny stock and micro-cap equity markets.
As an example, SmallCapInvestor.
com, Investopedia.
com, MotleyFool.
com, WallStreetReporter.
com, and CNBC.
com, are but some of the reputable companies and sites that offer excellent in-depth analysis of numerous publicly traded companies.
There will be times when an investor and/or stock trader receives solid information discussing a stock that is ready to move quickly.
For example purposes only (the author holds no position in any stock mentioned in this article), Med Careers Group, Inc.
(OTC BB:MCGI), after recently receiving positive research reviews, popped up in March, 2010, on a significant volume spike.
The stock price then retraced back to reasonable levels prior to a recent announcement that it had entered into a strategic alliance with Premier Healthcare Professionals, Inc.
(PHP) to pursue acquisitions in the healthcare staffing industry on behalf of MCGI.
The news release was highly beneficial for MCGI's stock price, which saw its stock price jump 35% at the opening of the trading session on the day of the announcement in May, 2010.
Trading volume on the stock also increased significantly as investors rushed to position themselves in the stock.
Beyond the excellent research and analysis that an investor could expect from a reputable research firm, knowledge of the expenses related to trading a stock is also very important.
MCGI is a stock that trades with a very tight bid/ask spread.
This means that the price that a market maker is willing to purchase the stock is only 1 cent different than the price at which market markers are willing to sell the stock.
This allows an investor to enter into a trade without having to experience a large rally in the stock price just to break even.
A good research firm will understand the importance of recommending companies that trade with tight bid/ask spreads and avoid steering their clients or subscribers to stocks that need enormous moves just for their members to break even.
Investors also need to be cognizant of good risk management practices.
This means that in addition to finding an undervalued stock that has a tight bid/ask spread, an investor needs to pick robust entry and exit levels prior to entering a penny stock or micro-cap stock trade.
Both entry and exit prices can be determined by using technical analysis, or 50 day and 200 day support and resistance levels.
In viewing a chart of MGCI, a stock trader could place a "stop loss" on a position below support, which in this case was near $1.
00.
There are many different ways to manage risk, but a stop loss level is imperative because it will allow an investor to avoid losing everything and live to trade another day.
Additionally, an investor needs to determine prior to entry where he or she will take profits.
This price could be a multiple of the initial price, or a technical price level, or a trailing stop.
The key to success is to determine your exit points and stick to a sound risk management plan.
The excitement that an investor can feel after analyzing a penny stock or micro-cap stock and riding the crest upwards as the emerging company grows in profits and stock price is exhilarating.
The challenge created by this very rewarding endeavor is to receive keen fundamental and technical advice, and use practical and robust risk management techniques.
Finding an undervalued gem in the emerging penny stock arena is easier said than done.
There are many stocks available that are low in price, but that does not mean that they are undervalued.
To determine if a stock is undervalued, an investor needs to perform a good amount of homework to evaluate the fundamental value of the company on which he or she is doing diligence.
To mitigate the time and effort needed to find a good company that is undervalued, many investors rely on trustworthy investment analysts that concentrate on the penny stock and micro-cap equity markets.
As an example, SmallCapInvestor.
com, Investopedia.
com, MotleyFool.
com, WallStreetReporter.
com, and CNBC.
com, are but some of the reputable companies and sites that offer excellent in-depth analysis of numerous publicly traded companies.
There will be times when an investor and/or stock trader receives solid information discussing a stock that is ready to move quickly.
For example purposes only (the author holds no position in any stock mentioned in this article), Med Careers Group, Inc.
(OTC BB:MCGI), after recently receiving positive research reviews, popped up in March, 2010, on a significant volume spike.
The stock price then retraced back to reasonable levels prior to a recent announcement that it had entered into a strategic alliance with Premier Healthcare Professionals, Inc.
(PHP) to pursue acquisitions in the healthcare staffing industry on behalf of MCGI.
The news release was highly beneficial for MCGI's stock price, which saw its stock price jump 35% at the opening of the trading session on the day of the announcement in May, 2010.
Trading volume on the stock also increased significantly as investors rushed to position themselves in the stock.
Beyond the excellent research and analysis that an investor could expect from a reputable research firm, knowledge of the expenses related to trading a stock is also very important.
MCGI is a stock that trades with a very tight bid/ask spread.
This means that the price that a market maker is willing to purchase the stock is only 1 cent different than the price at which market markers are willing to sell the stock.
This allows an investor to enter into a trade without having to experience a large rally in the stock price just to break even.
A good research firm will understand the importance of recommending companies that trade with tight bid/ask spreads and avoid steering their clients or subscribers to stocks that need enormous moves just for their members to break even.
Investors also need to be cognizant of good risk management practices.
This means that in addition to finding an undervalued stock that has a tight bid/ask spread, an investor needs to pick robust entry and exit levels prior to entering a penny stock or micro-cap stock trade.
Both entry and exit prices can be determined by using technical analysis, or 50 day and 200 day support and resistance levels.
In viewing a chart of MGCI, a stock trader could place a "stop loss" on a position below support, which in this case was near $1.
00.
There are many different ways to manage risk, but a stop loss level is imperative because it will allow an investor to avoid losing everything and live to trade another day.
Additionally, an investor needs to determine prior to entry where he or she will take profits.
This price could be a multiple of the initial price, or a technical price level, or a trailing stop.
The key to success is to determine your exit points and stick to a sound risk management plan.
