People have a phobia of penny stocks. This fear has been instilled in them because they hear a lot of stories about people who have been “swindled,” “ripped off,” or otherwise “scammed.” Other people may have had costly personal experiences, or heard stories of friends and family who’ve lost money.

Running Peter Leeds Penny Stock over the last 14 years, we’ve heard it all. Some people simply want to share their grief, others to let out their anger, and some are actually interested to learn what they did wrong. Well, to answer all the questions, here’s my take on the whole situation.

Most people who trade penny stocks lose money. This is almost always because they invest:
• for the wrong reasons
• at the wrong time
• (most notably) in the wrong companies

For every 9 people losing $1 on the market, the tenth person is making $9. That tenth person is who you can become, if you learn to invest:
• for the right reasons
• at the right time
• (most notably) in the right companies

Not everyone is successful with penny stocks, and they can go up or down in price dramatically. However, there are ways to improve your odds, and protect yourself at the same time.

Of course, the first step is to decide if penny stocks are even an appropriate investment vehicle for you. They might not be, based on your experience level, risk tolerance, or personal investment strategy.

It’s important that you know when NOT to trade penny stocks:
• you’re losing sleep at night because you’re stressed out
• you wind up fighting with your spouse about it
• you think about it so much that you aren’t paying attention to your family
• your mind wonders away at work

If you find yourself thinking about your penny stock investments too frequently, this type of investing may not be right for you. Of course, this doesn’t apply to plain excitement, when your penny stocks are multiplying in value, and your constant thoughts are positive ones. Rather, it’s when negative associations start cropping up that you may want to take a break from the world of low priced shares.

It is also important to have realistic expectations. A lot of less-experienced investors think they can turn $1,000 into a million bucks just by trading penny stocks. Many people have great success stories and make a lot of money, but it’s not realistic to expect to make such ridiculous amounts.

Yes, technically it is possible. It has happened. Of course, those are extremely unique situations. That will not happen to you. If you prove me wrong, then fantastic, but it is not helpful to expect such a monumental degree of success. It’s important that you have realistic expectations.

Penny stocks go up in value very frequently, doubling or tripling in price. Very often penny stocks go down in price. You need to have a good comprehension of this, and don’t enter the penny stock arena until you’re ready to approach it with a sensible understanding.

You should get involved with penny stocks only with risk money, especially at first, and certainly if you’re a less experienced trader. Don’t put money into penny stocks that you need for your children’s education, or your retirement, or your mortgage. In other words, never put your grocery money into the stock market.

Should you talk to your financial planner? Absolutely. You could talk to them about penny stocks, but I’ll save you the trouble of taking the trip. I’ll tell you what they’ll say:
• “No, it’s dangerous”
• “It’s ridiculous”
• “Stay away from penny stocks”

Hey, I actually happen to agree with them! Penny stocks are dangerous, and ridiculous, and you should stay away from them. Most penny stocks will potentially cost you money. In that sense, I’ll agree with the doom-saying financial planners.

Where I diverge from their generalized opinion is as follows:

Once you know how to find the 5% of penny stocks that represent high quality investments, penny stock investing becomes possibly the most lucrative way to build wealth.

To find that top 5% among the thousands of penny stocks, you should:
• learn all you can about stock market investing
• paper trade (test yourself on paper before risking real money)
• get picks from professional analysts
• read all you can about penny stock investing

Look for the free online e-book, Understanding Penny Stocks, and read about paper trading penny stocks for risk-free investment.

Just remember, don’t start looking for those hidden gem penny stocks until you’ve been very honest with yourself, and decided that speculative trading like this actually is appropriate for you.

About the Author: Peter Leeds is The Penny Stock Professional. Along with his team, they publish reports on high-quality low-priced investments, such as penny stocks and speculative shares.

http://pennystocks.com