What Not to Do When Trading Penny Stocks

When it comes to the stock market, nothing is more profitable or volatile than penny stocks. Although it might seem easier at first to make a bigger profit from Penny Stocks, it does involve a similar mentality as regular stock trading.

Over the course of an investing career, most beginners and even intermediate level traders will fall into the many traps of trading. If it happens that you see yourself falling into any of the "traps" below, understand that it's natural to do many of them, but you must train yourself not to fall victim to them...

1. "Falling in love" with a stock, a company, a technology or a "story"

Often times, when beginner traders first start investing, they get caught up in the moment of trading. While it's perfectly okay to enjoy the stocks you're buying, and even like the company, any stock trading expert will tell you that getting too emotionally involved with the stocks you're buying can kill your profits.

A company's "story" might be important to know for long-term investing, but for short-term trading, falling in love with a company's story isn't a wise investing move. Especially for shorter-term investing, it's important to do diligence on penny stocks before investing big.

2. Trading and picking stocks like if you were gambling on a casino

The second trap a lot of beginners fall into is to assume the stock market is like gambling, and to randomly invest in stocks. There are reasons why prices of stock go up and down, and the truth is, that a lot of beginner investors will invest like they're gambling on a casino table... based on a matter of luck.

Expert traders will always look at graphs and charts to see why, and when to buy shares of stock. There are plenty of powerful software's out there to help automate most of the research, but it's important to understand that researching stocks first is a critical step.

3. Buying penny stocks that are pumped on message boards, spam emails and bogus hot stock tips

This happens more than we see, but when we read about "easy-money" from investing early in a new penny stock, it entices us to think that only a select few are buying. The reality is, the initiators of the "stock pump" are almost always the only ones to profit.

It's always a wise move to avoid the allure of impulse investing in any stock being advertised in general. Do the research first...

And this leads us to the last of the "traps".

4. Failure to control emotions

This one's simple... don't fall into the trap like most traders do of basing trades on emotions. Trading with out a strategy that clarifies when to buy and when to sell a stock is dangerous. In order to trade successfully over and over, you need to have clear buy and sell signals.