Should You Invest in Tech Penny Stocks in 2017?
A glistening red Ferrari zooms by and off jumps a burly man in a black hoodie. He chatters excitedly as he takes us on a tour of his multi-million-dollar villa in Los Angeles. The man is a penny stock trader who turned a small sum into a big fortune, and this is a scene from a reality TV show.
The truth is, if you know which penny stocks to watch right now, you could follow in his footsteps and make some hard cash from technology penny stocks in 2017.
This man is Timothy Sykes, a penny stock trader-turned-millionaire. And I'm watching him on my TV screen as he gives a sneak peak into his luxurious lifestyle on Steve Harvey’s show.
Sykes has turned $12,000 into roughly $2.0 million in just four years of trading. His is the archetypal story of rags to riches.
In the trading world, Tim Sykes is celebrated by rookie penny stock traders as the man who pulled the rabbit out of the hat. But not everyone can be Tim Sykes. One misstep, and the dream of making quick riches can go down in flames.
How to Invest in Penny Stocks with My “Three-V” Formula
If you've followed my writings, you must be aware that I'm not a huge fan of trading. And yet, I’m not shy to admit that investing in penny stocks has always seemed very alluring.
There’s one problem, though. These stocks sell for pennies for a reason. They have no promising fundamentals that can attract average investors. To put it mildly, investors find most penny stocks to be garbage investments.
Now, I hate to break this to you, but most financial journalists are not sincere in pitching penny stocks.
On one hand are the slackers who cut corners. To make their life easy, all they do is use a stock screener to screen out stocks trading under $5.00. Then they make a pitch without doing much homework on the company. That's easy. Anybody can do it.
Then there are others who secretly hold the penny stocks they're tipping you on. They pitch you to buy the stocks without disclosing their positions and later sell on a pop—what we call a classic pump-and-dump strategy.
But then who do you trust and where do you invest?
Let me be honest. Penny stocks are likened to gambling for a reason. There is no foolproof way to make money on penny stocks. And yet, impossible is nothing, my friends!
My modus operandi for picking penny stocks comes for free to my readers. I call it the “Three-V” formula. If you're a novice investor in penny stocks, these three Vs might make it easy for you to screen out the right tech penny stocks to watch.
So let’s dig in!
The first of the three Vs is Volume. By volume, I mean the number of shares of the stock that trade on the exchange on a given day. This is the most essential metric to consider when investing in penny stocks.
Why is it important? Because we've already established that penny stocks are not the hottest of tickers. The majority of the investor community steers clear of them. Low demand is what forces their prices to stay low. This causes their volume and, ultimately, their liquidity to shrink.
Low liquidity means the bid-ask spread is wide for these stocks. What does it mean? Let me explain.
If you’re ready to sell but there aren't enough buyers out there, you’ll have to settle for an unfavorable price. In other words, you’ll be "asking" more, but the buyer will be "bidding" less. Hence, the wider spread.
So if a penny stock is relatively actively traded, it means you’ll have less trouble buying or selling it, and consequently, the bid-ask spread will be narrow. My rule of thumb is that for stocks trading under $3.00, I look for average volumes of at least 200,000. A penny stock with an average volume of over a million could be a steal.
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