Devoting your hard-earned money in penny stocks is a wise move to make if you are aiming to increase your profits. However, it is also tricky and you might also find yourself losing money along the way if you don’t manage to be clever enough. Don’t worry though, after you take these tips into consider it will help you increase your profit earning potential and make smart decisions.

There is a reason why penny stocks are called “penny.” It’s definitely inspiring to dream about investing in a very successful company such as Microsoft or Goldman Sachs but success stories do not happen overnight and do not occur frequently. These corporations are oftentimes just starting out. They might have bought a shell corporation because of its relatively cheaper cost than an IPO. In some cases, they might not bear a strong business plan that was not convincing enough to get mainstream venture capital. Of course, these things should not immediately brand them as “awful” but they should at least make you aware of the types of companies you are putting your money into.

The trading volumes must be high enough. Oftentimes, the volume of shares is a good indication of a company’s success. Don’t look though on the average volume for it can be deceptive and confusing. If Company A acquires a million shares today but doesn’t acquire shares for the whole week, then the daily average will turn out to be 200,000 shares. To stay afloat, a corporation must have a consistent volume of shares. Check out the number of trades that trade per day. Liquidity is a very significant consideration that you should never forget. Holding a large position of a company that you can’t liquidate at a reasonable price without killing the bid can be quite irritating.

The company must be well-versed in earning profit or expanding. It’s normal if a company experiences losses during its start-up but you have to see and know the reason for the losses. If the reason is controllable and still avoidable, there’s no need to worry. If not, then the company will have to rely on financing, bonds or dilution which will decrease the share price of the penny stock.

If your chosen corporation is knowledgeable in making a profit, then they will be wise enough to use the money for business expansions that will likely increase the value of shares. Researching is a foolproof way to know these things about the companies. Never hesitate to call the company and ask to speak to the CEO or investor relations.

Strategize your entry and exit plan and be consistent about it. The truth is, penny stocks are unstable. They might be up today, but down tomorrow. If you purchase a stock that’s worth $0.20 and sell it $0.24, that already stands for 20% return of your investment. Conversely, a little decline of 2 cents will leave you limping over a 10% loss. If you’re initial investment capital amounts to $1,000, a 10% loss will immediately cost you a $100. If this problem happens to you for 10 times, then you’re out of the game already. Don’t invest too much if the corporation seems to be stagnant. It’s better to secure your capital as well as your profits.

How did you learn about the stock? A lot of investors know about penny stocks by receiving e-mails from penny stock newsletters. There are hundreds of penny stock newsletters which claim to be credible and unbiased when in fact they can pump and dump you instantly. The corporations will pump their images to innocent-looking newsletters and in return, unsuspecting subscribers will purchase while the companies earn endlessly. Of course, a pump-and-dump scenario is a win-loss situation and you can benefit if you know how to trade it effectively.

It doesn’t mean that all newsletters are deceitful and awful. There are indeed companies and promoters which aim to provide truthful information. Some are paid using the company’s shares, while some in cash. Spotting a credible company is easy by subscribing and by taking note of the investments. Do research on the newsletter’s track record when it comes to giving subscribers a successful and lucrative mean of investment. After a little bit of time, you will be able to see how creditable the newsletter is.

The most simple tip is to probably not to put more than 20% of your total portfolio in penny stocks. Remember that your reason for investing is to make more money so that you’ll have capital for future investments. If you put too many eggs in one basket, then you’ll definitely have a greater risk of losing it all.