Penny stock trading is an extremely speculative and risky investment. It can also be very financially rewarding. Before you invest your hard-earned money in penny stocks, you may want to consider doing a “dry run.” That is, research different stocks, create a penny stocks list, and engage in paper trading.
Paper trading is akin to playing Monopoly. You don’t actually use your money to play the game, but you can get an idea of how your imaginary money grows and dwindles with every move you make. Paper trading is trading the investments on your real penny stocks list using imaginary money and tracking the results. This exercise will give you a general idea of how you would have fared compiling a penny stocks list and acting upon your research without risking any of your own money.
For example, you would start by compiling a penny stocks list. You would then take this penny stocks list and research each one. By researching several stocks, you can get a feel for your research strategy to see if it is viable. After you’re done researching your penny stocks list, start with an imaginary portfolio of $100,000. You would treat this imaginary portfolio as if it were real money, allocating different amounts to the different stocks on your penny stocks list. Then, you keep track of all of your investments. You can make “virtual” trades, buying and selling shares of different stock, and then check in on their performance over time. Set a time limit for paper trading, such as 4 weeks. Meticulously document every transaction and every result from each transaction. Once the exercise is over, you can analyze your performance and evaluate where you did well and where you need more assistance.
When you engage in paper trading, you can learn all about penny stock investing. Every aspect is covered, from choosing stocks, researching stocks, monitoring performance, and deciding on entry and exit prices. In your analysis, you might see patterns and tendencies. This might be your investment strategy or methodology. If it resulted in a large virtual payoff, you can refine your methodology. If it resulted in a large virtual loss, you can seek guidance from a professional to see how you can improve.
Before engaging in paper trading, you should decide what you hope to accomplish. For example, are you looking to refine your stock-picking methodology? Are you changing a current methodology to see if you can augment your returns? Are you seeking to learn the basics of how to invest in penny stocks? The answers to these and other questions will help focus your paper trading efforts and yield the greatest benefit. Once you’re comfortable with paper trading, you’ll be less apprehensive when your real money is on the line.