The secret to investing in penny shares successfully

Julie Brownlee, Fsp Invest, 02 Oct. 2015

Tags: penny shares, investing in penny shares, penny shares investment strategy, investing in shares, penny stocks

Penny shares lure many investors as they have the potential to make you astounding gains and sometimes over a short period of time.

But the expectation of penny shares performing well means many investors are disappointed when they don’t do this quickly.

So how should you approach investing in penny shares?

Let’s take a closer look…

Why you should invest in penny shares

Many penny shares are full of potential. But you need to approach penny shares the same way you’d approach investing in other shares on the stock market.

It all comes down to how long you should hold a penny share for.

You should invest in penny shares with the view that it’s for the long-term, not a short-term gamble.

There are of course times when you may consider selling, or actually sell your shares. You should do this when there are changes that interfere with your reasons for buying in the first place.

It makes sense to have an exit strategy in place before you even invest in penny shares. One of the most common exit strategies to use is a stop loss. You could run a 20% or 25% stop loss behind each of your positions.

When to sell your penny shares

There are two main reasons why you may consider selling a share…

The first reason is the company’s changed in a financial way. You don’t think it’s going to recover and there’s scope for further falls.

The second reason is that the share is down in your portfolio, so every time you look at it, you see it’s down. This can knock your self-confidence and can be depressing.

But if you think the future prospects for the penny share are the same as they were when you first invested, you should stick with it unless it hits your stop loss.

Another aspect to consider is selling out a share that’s performed well. When is it time to sell? You don’t want to sell too early and miss out on potential further gains.

You need to let your profits run. To do this, run a tight trailing stop loss so you can sell out if things change. This preserves a chunk of your profits.

The key thing with investing in penny shares is to do it for the long-term. Jumping in and out of different penny shares will only benefit your stock broker.

Look to invest in the best quality penny shares you can find with the best prospects. Then hold on for the long-term.

So there you have it. The secret to investing in penny shares successfully.

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