Penny stocks can be very rewarding, but they require a different risk reward when entering them as trades.  This is not like buying a high quality stock, you’re taking more risk, and therefore, should greatly reduce the amount of initial money you trade in penny stocks.

I recommend the following Penny Stock Advisory services:

Microcap Millionaires

The above service will allow you to sign up and receive 3 free stock picks, so you can see how well the service performs before having to pay anything.  I like this feature…

Penny Stock Prophet

As you can see, there is a lot of competition in the Penny Stock Market – so there are a multitude of services to choose from.  But only a few leap to the top.  This one leaps to the top.  Managed by Jim Connelly, this is another one where you can sign up and get free stock picks before even trying the service.

Our last recommendation is for Penny Stock Promo, headed by Doug Graham.

Click Here to Try Penny Stock Promo

Remember, each of these services has something to offer and generally you can get a lot of great free stuff just for signing up.

Penny Stocks versus Low Priced Stocks

This is an interesting debate.  To me, I’ve always considered stocks to get much more risk as you break below the $5 level.  So does a penny stock need to be priced in pennies?  I think not.  The game is the same pretty much as soon as you get under the $5 level.

Invest when they sleep, sell when they leap. 

A penny stock will go through a long period of consolidation.  This generally gets the weak hands out of the stock.  One strategy is to buy your shares when the stocks have gone into hibernation for several weeks, if not months.  And wait…  

There are market conditions that are better for low priced & penny stocks.  These conditions are when liquidity is high, markets are advancing, and traders are seeking alpha.  It can also be a sign that a market advance is mature – as the low quality stocks tend to do best, just before a stock market top.  So you have to be very careful playing this game.  You don’t want to be the last one needing to sit, when the music stops…

Another strategy is a break out strategy.  This way, you don’t use up your capital holding onto positions and just waiting for an advance.  You place a buy stop market order above the current price consolidation and automatically get entered on the breakout.  Breakouts are a great strategy, best in the early stages of a market advance.  As a market advance matures, breakouts will tend to fail and prices will fall back into the base. 

How do you know if an advance is mature?  You don’t.  The only clue you have will be your success rate will start to drop.  You’ll be stopped out of more and more positions.  What once worked well will stop working.  That’s it.  You need to listen to your numbers, as they’ll tell you what you need to know.  The easy money comes early in the advance, but as an advance matures – it becomes more of what they call a stock pickers market. 

The lure of penny stocks comes in the large number of shares that the individual investor will control.  That being said, one reverse stock split can take your 10,000 shares and turn them into 1,000 or 100 pretty quickly.   And that will make the stock ripe for shorting once again.  So be cautious of the reverse stock split.  It’ll change the nature of the stock movement.