Penny Stocks vs Big Board Stocks
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Penny Stocks vs Big Board Stocks
Don`t treat it the same way as they are completely different. Here are the reasons why
With the big boards, your typical holding period is more than a few weeks. A typical person will buy the stock as an investment for the future
(with such hopes of making it big for them, or giving them a nice cushion to retire with).
With the big boards, you can just "set it and forget it". By this, I mean that you can just buy the stock and watch it grow. A great example of this is the story of Grace Groner. In 1935 she bought 3 shares
(yes, THREE shares) of Abbott and never sold them.
When she passed away this past January (2010), her estate was worth approximately $7M
(yes, 7 MILLION DOLLARS). Groner worked as a secretary in 1931 at Abbott Laboratories and over the years, the shares split many times over causing the dividends to be reinvested. 7 decades later, the shares were worth over Seven Million Dollars. Over the years prior to her death, she did sell the shares and took the money and donated it to various shelters and homes around her area, with the final monies going to a college near her home.
But, the moral of this story is that you can buy some little stocks and let it fly for you (imagine what could have happened if you bought GOOG, AAPL, etc.)
With the big boards, typically, one will not be deemed a daytrader, unless you have a lot of money. Someone would need a good `chunk of change` in order to play regularly in the big board arena as most stocks are typically over $1.00
Within the Penny Stock Arena everything is completely different.
Your holdings are typically hourly, and rarely overnight or weekly. A person who plays the penny stocks will typically hold for a short period of time to maximize on their profits or limit their losses.
If you follow the `set it and forget it` theory, then the company you are playing may not be there in a year. Typical penny stocks are shell companies and do not last long. There are the rare cases where the company is real and just had some bad luck (XM, GNVC, CBAI, etc.) but typical companies are shell companies.
When you play the pennies you have to think and follow certain rules. Here are some that I typically follow:
1) Which broker / trading company should I use (we will go into some later)
2) How much will the broker / trading company cost me
3) How fast is the broker / trading company in terms in of execution time
4) How is the customer service
5) Do they offer call in support
6) Do they have a large restricted list
7) What companies are promoting the stock now (could be a P&D)
Remember:
Never fall in love with a stock when trading pennies, as they will not love you back.
A profit is a profit (whether it is 10% or 50%, money is money)
Always set a stop limit / stop loss (protect your assets). You earned your money, mind as well protect it as well!
Buy on rumor, sell on news. Typically a stock will do very well as the rumors fly, but once the news comes out, it is just `old` and is typically played out. So that is the time to sell to maximize on your profits
The Trend is your friend.
This is a saying used by just about every promoter out there and trader. Follow the trend as the upward momentum will allow you to make more profits.
Do your own D&D and remember to ALWAYS protect your Entry with Stop Loss Happy trading, Chris
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