Can Penny Stocks Make Millionaires?

Is it possible for people to really make a substantial profit using Penny Stocks, even to become millionaires? Certainly there are some people who make huge amounts of money with stocks, ordinary people who trade in their own time perhaps as a hobby rather than as a professional trader. It is very likely however that although they started on penny stocks they eventually moved up to other potentially more profitable stocks using larger sums of money once they felt they were more experienced, and had more money to spend. Of course the question then becomes how do you start making profits quickly in penny stocks with the least risk?

Before we answer that question, let us quickly define exactly what we mean by penny stocks. There are different precise definitions, but in general the phrase refers to low priced, highly speculative stocks which normally sell at less than $1 per share. They are very volatile and can rise and drop hundreds of percentage points in minutes, sometimes as much as 400%. This can of course be dangerous, but can also be extremely profitable if you know what you are doing.

Now that we know what penny stocks are, how can we quickly work out what to trade and when, to maximise our profits? Remember, normally only after we have made a number of trades using small low risk sums can we even think about making the kind of trades we need to make the big money quickly. In most cases traders simply have to put in the hours - and weeks and months and years - to become experienced in the market. Only after trading many times and analyzing the trends and results over a long period can a trader say he really understands trading stocks, and even then he will still lose on many trades.

However there are of course many shortcuts on offer. There are many “systems” available, ways to help you identify trends and profitable opportunities as they happen, but there are huge problems with most of them. The main problem is simply that any system still relies on analysing the historical trends, and this takes time and effort. However, there may be a new solution.

Two computer programmers have created a piece of software which performs scans of stocks looking for companies who are forming bullish trading patterns, ie their stocks are about to increase. This software records historical information constantly and learns more and more over time, and every week it outputs recommendations of stocks it thinks should be bought and sold. These recommendations are only made when the software is confident in the outcome, based on the huge amount of data it has analysed.

Of course, as with all stock trading, and particularly in the volatile penny trades market, not every decision will be correct, even the software cannot predict every possibility. But on average the software is reported to create gains of 105.28% per week, even accounting for the trade recommendations which do not work out. Could this be the key to making significant profits from penny trades without spending years as a trader? Apparently if someone had put $5000 on each of the recommended trades over 4 months last year they would have made $387,684 in profit.

Stock promoters charge a company a fee to get them more exposure and ultimately more investors. This works out well for the company and the promoter. Companies don’t do this themselves for lack of marketing knowledge and lack of contacts. Stock promotion companies are the answer in such a situation and it works well most of the time.

Stock promotion companies are required by the SEC to list the companies and fees charged to promote these companies in their disclaimer. So if you are ever curious about this just go to a site that is promoting stocks and look at their disclaimer. However, this should not discourage you from investing in a company just because they are paying someone to promote them. Promotion is typically a good indicator that a stock is going to rise significantly. So use this knowledge to your advantage.

Hot items like gold attract the interest of many entrepreneurs and start ups. You would expect something like gold to be offered by many penny stock companies but remember that a great stock or product does not make a great stock.

Oil is the same way. There are many oil penny stock companies hoping to hit it big in the ground and in the stock market. Just don’t get too excited and lose focus of the details that make a good or bad stock no matter waht industry.

1. Cash Flow - You need to understand that these are typically new and emerging companies and need cash if they expect to stay in business. Sounds simple but many people overlook this. Best penny stocks are ones with plenty of cash flow otherwise there is not much room for speculation.

2. PE - Price to earnings ratios are also an important factor when choosing the best penny stocks. This is investing 101 info but some people feel it is difficult to calculate a true PE for a penny stock that fluctuates so much.

3. Low PEG - The best penny stocks will usually have a low Price/Earnings/Growth factor.

4. Management - Its not easy getting a penny stock company off the ground. It’s going to take some wise management. You can say the best penny stocks have the best management.

The housing market changes lately have really made the stock market shaky in many different ways. One of the ways is fear. Many people have sold just about all their valuable stocks for fear of losing it all. This has also caused more interest in more short term high yield investments such as penny stocks.

There is definitely a trend there and those who have followed it have profited.

Taking calculated chances is what the stock market is all about and penny stocks are no different in that respect. You don’t have to wonder around blindly hoping to get lucky. Just do your due diligence and homework before investing in a stock. And never put all your eggs in one basket. Diversify your portfolio and your average gains will be stable.

However, here is a word of warning about penny stock message boards and forums. These are great places to get information and create investing relationships but they are also great places for scam artists. You should know that there are many who wish to “pump and dump” stocks for a quick profit. This just means they invest in a stock then tell everyone it is going to skyrocket. People then buy in, the share prices go up then that person sell all their stock making a large profit.

Take your time and get to know who you can trust before you take just anyone’s advice.

Scottrade is one the few online trading companies that seem to have near real time quotes. Aside from that you will need a day trader like setup with multiple computer monitors and expensive software. Of course this can be a great investment if you do it right but most people are not in the mood to create such a setup at their home or office.

This is exactly why it is more efficient to follow the picks of those with much experience. This saves you time, money and frustration.

1. Positive financial figures – If the company’s profit to debt ration recently improved then that is definitely a good buy in time.
2. Expansion or merging – Investors love expansion or when companies merge and you should too.
3. New product or service or a significant improvement on current products or services.
4. New superstar leadership lineup – Everybody wants to follow a great leader. Interestingly enough, money likes to follow these people too.

So, there you are. Surely not a comprehensive list but a quick one nonetheless to vet those ever so frequent company press releases.

Can a penny stock investment make you fortunes? Well, if you are trying to get rich off of one single stock then you are going to need more luck then skill. However, if you play your cards right then you could land a great buy with several undervalued penny stocks and make a fortune. This does not mean you need to become a day trader but there will be times when you need to sell in the same day that you bought as a penny stock is a whole different animal as far as daily activity is concerned.