Is It Worth Longing Penny Stocks?

Stocks

Penny stocks are inexpensive, intriguing stock options that allow investors to net strong returns in a short amount of time, using an aggressive investment approach. Penny stocks typically cost less than $5 per share but carry many risks as you can potentially lose a good amount of money within a short time. 

Investors are increasingly seeing the worth of investing in penny stocks during the pandemic era, with more eagerness to invest shown in the latter stages in 2021 due to the economy’s gradual recovery. A major indicator of the increased interest in penny stock investments is the boost in the daily trading volume, with reports indicating that the average volume doubled from where it was in 2019 before the pandemic started. There has also been increased social media chatter around small companies and the worth of penny stocks in general. 

Though penny stocks are thought to only net short-term gains, there are penny stocks available with long-term growth catalysts. However, they carry more risk than regular stocks. Here, we look at the parameters involved when longing penny stocks and the potential to maximize a long-term penny stock investment. 

The Risks Involved With Long-Term Penny Stocks 

Penny stock investment requires a lot of information gathering and strong risk management to see viable returns on investment (ROI) over time. Before getting involved with penny stocks, it’s important to get as many opinions as you can before investing with penny stock companies. Make sure you conduct as much independent research as possible on the penny stock companies that most pique your interest. Many investors make the mistake of relying only on the information provided by penny stock companies or from any stock promoters. As a result, many investors are left prone to fraud.

Penny stocks traders rarely see big profits. Some investors see profits from short–term, emotionally-driven moves rather than any stock or business fundamentals. The reason why profits are so hard to come by through penny stock investing is because of the volatility that accompanies penny stocks, triggered by low-market capitalization and the imbalance in buy/sell orders. 

Because of the volatility of penny stocks in general, longing penny stocks comes with immense risk. Stock experts express that investors must be realistic about their expectations when investing in penny stocks, stressing that penny stocks don’t typically make money over the long term. Several penny stock companies possess long-term growth catalysts, including platform technology companies, medical companies, digital asset companies, and more. However, the temptation of holding on to penny stocks for long periods to attract huge gains is very risky and diminishes your return potential. If you plan to invest in long-term penny stocks, you need to be prepared for the heightened possibility of losses. Since many penny stock companies on the market aren’t completely legitimate, the prospects for long-term investment success with these stocks are tested further. 

Penny stocks don’t move organically and require a fair amount of creativity to ensure investors see any success, especially in the long term. 

How Long Should You Hang On to Your Penny Stocks?

Particularly if you’re a day trader, you may end up buying or selling stocks every five to ten minutes. However, if you’re looking to become a long-term penny stock investor and don’t want to trade much off momentum, you can hold penny stocks for up to six months

When you’re longing a penny stock, you’re purchasing a stock with the anticipation that it will increase in value. You can buy the stock low and sell high at any time. You don’t need to link with a special broker when investing in a penny stock for the long term. Any investor can open an account before buying and selling. Though there are more long-biased stock traders in the stock market than short-biased ones, shorting penny stocks has become more popular. 

One benefit of going long when investing in or trading penny stocks is the short squeeze that occurs when you do so. Coronavirus stocks, for example, have skyrocketed since the pandemic was officially declared in March 2020, with many over-aggressive short-sellers causing these stocks to heat up. As a result, huge short squeezes are created, allowing prepared long-sellers to capitalize on the momentum and maximize their long-term ROI. Investors longing penny stocks must understand how to short stocks as well. Knowing where and when short sellers will enter or exit the stock market provides an advantage for long-biased penny stock sellers. That and considering how long to hold the stock, will determine whether the long strategy is worth investing in.

Are Longing Penny Stocks Worth the Risk?

Longing penny stocks carries lots of risks. If you’re a risk-averse investor, it wouldn’t be wise to long a penny stock. However, if you’re an aggressive investor with strong risk management skills looking for a unique way to diversify your investment portfolio, then you can take the chance. Either way, there is a good chance you can lose money when holding a penny stock for any considerable period. 

Any time you’re going the long-term route with your penny stocks, be aware of any penny stock companies with offerings. Any time a company makes an offering, they’re likely selling more shares as they’re looking to raise funds. As the company in question releases news and stock prices rise in huge volumes, that company will make an offering at a value below the current market price. (Savethechimps.org) Offerings increase the number of shares available to trade. As a result, it’s harder for the price to go up, with the penny stock requiring more demand or volume to increase the stock price considering there is more supply. As a result, stock prices will crash, leaving long-term penny stock investors in a very uncomfortable spot. 

It’s important that penny stock investors cut their losses quickly when they occur to maximize their chances of profitability when trading. Like any stock approach, longing penny stocks carries its fair share of risk but can lead to notable rewards if you can manage the risk accordingly.

 

 

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