Penny stocks and low-priced shares are not right for everyone, despite the fact that they do have a lot of great attributes. They truly can turn a small investment into a large sum of money pretty quickly (but can just as quickly wipe those dollars out).
For many people, the potential for big rewards does not outweigh the risks. Be honest with yourself, and do not feel bad about walking away from the entire concept. In general, this is often the best choice, because MOST situations involving penny stocks result in many investors taking losses.
The good news is it is easy to avoid the catastrophic losses some investors make in trading penny stocks. The reason most investors are wasting their investment dollars is they are buying the wrong stocks, at the wrong prices, and usually for the wrong reasons. This leads them to hold on to such stocks for far too long.
For example, the vast majority of investors who buy penny stocks that trade on the over-the-counter (OTC) markets, will likely lose money. On the other hand, investors buying well known companies on regulated, major U.S. exchanges exchanges will significantly improve their odds of success. These are mainly serious companies, with proven business models.
Penny stocks, those with a price of less than five dollars per share, are likely to be companies that have fallen on hard times. Investors are signaling, through the price of the shares, that they have doubts the company will survive. If they did not have such doubts, the price of the stock would be higher. But if these companies have stocks on major U.S. exchanges, then they are demonstrating that they have enough resources and market knowledge to attract investors, and there is a chance they will turn their business prospects around.
Successful penny stock investors know that what they need to look for are signs of a business turnaround.