Olivia Still | oliviastill

Common Misconceptions about Penny Stock Trading Debunked

Mar 24th 2015 at 10:09 AM

 

Here we will attempt to demystify this largely unknown business environment which comes with certain risks and plenty of misconceptions. In fact, it's like any other market where smart and skillful people earn millions of dollars every day. Here are some common beliefs about Penny Stock Trading.

Only unprofitable companies sell penny stocks

This very common misbelief makes people ignore this vibrant market of low priced shares. Among the companies selling these stocks there are many start-ups that are still in their experimental stage. This is why it is important for every serious penny stock player to check all the available information about the company whose stocks he/she is trying to purchase. The biggest evidence that this claim doesn't hold water are the new pot billionares who decided to invest in penny stocks of marijuana growing companies before marijuana was legalized in Colorado and Washington State.

Always Follow Your Instincts

Trading in penny stocks is not the same as gambling. A common misconception is that changes in this market can’t be predicted and it’s better to rely on your instincts than on knowledge of the stock market and advice of more experienced traders. Of course there are changes that are impossible to predict, but with enough knowledge about stock trade you will be able to better take calculated risks and to recognize pump-and-dump schemes and other similar scams more easily. Learning from more experienced players is great way to improve your knowledge and get the hottest tips. The best example of how consulting with a successful trader regularly can be useful is the case of Tim Grittani who turned his starting capital of only $1,500 into more than $1 million.

Blue Chip Stocks Are More Reliable Than Penny Stocks

Blue chip stocks are shares of large, well-established companies. Despite the common misconception that investing in these shares offers more security than investing in penny stock markets, trading these stocks comes with the same risks as trading in stocks of smaller and lesser known companies. The US has survived several market crashes with Black Tuesday being the biggest and the most devastating, followed by the 2008 crisis. These dramatic events are clear evidence that every stock market comes with a similar amount of risk.

You Always Need to Act Fast When Trading

People watch movies and think that stock market is a place where great throngs of people are constantly running around and yelling, “Buy, buy, buy!” and “Sell, sell, sell!” Good timing is definitely one of the important factors in trading, but buying or selling stocks without conducting  broader research into the company in question in the end can lead to substantial loses. Scammers count on this myth when they sent spam emails, post tweets or send text messages. Each one of these contains phrases like: “Act now, don’t miss an opportunity to strike it rich!”. Unfortunately, new traders are not the only ones who get sand-bagged by pump-and-dump and other similar schemes. The Enron scandal led to its bankruptcy and investment losses for hundreds of traders, among which  included many experienced players.

Don’t believe in myths and rumors. Only knowledge, hard work and a little bit of luck can make you a successful trader. Be diligent, careful, listen to your elders, and you might be the next stock millionaire.

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