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Penny Stocks are officially defined as stocks priced below $5. However, an even more common definition for a "penny stock" is one that trades below $1 and in numerous situations, even below a penny.

It is usually implied, but isn't necessarily true, that penny stocks can be micro caps with capitalization of less than about $250 million, and is therefore capable of creating huge wealth. Penny stocks are literally found across the full range of capitalization from the micro caps to large cap stocks.

As a group, micro cap penny stocks are often avoided by big funds since prices are very easily affected by sizable buy and sell orders. Also, capitalization is just too small to affect a large fund's bottom line. Additionally, there are insider responsibilities included in buying more than 10% of a publicly held company so to avoid this, large funds generally don't take up penny stocks - not even the micro cap ones.

While the best penny stock market poses a higher degree of risk compared to major stock exchanges that deal large cap stocks, additionally they give tremendous profit potential for person investors with small amounts of capital, if they make wise trading decisions. Here are some tips that can help you profit when trading small cap stocks:

- Be Diversified! Never put all of your eggs in just one basket. Attempt to purchase at least 5 various penny stock picks at a time. If you have $5,000 to invest, put $1,000 into each stock. When one is sold, substitute it with an additional hot penny stock.

- Never fall in love with a stock! Adhere to your plan! If a one of your penny stock picks hits your target price, adapt a "Stop Loss". If the stock continues to climb, move your "Stop Loss" with it. When it stops out, go on to the next penny stock. We've got much more information on our stock terminology page.

- When seeking to buy or sell a stock at the market opening, have patience! If you are looking to buy a penny stock, notice how a large amount of stocks open strong, rise for approximately an hour and a half, then set out to dip. Then for the following hour things will start to stabilize. Then after the market is open for two and a half hours, it will start to climb again. Use this same information for selling a penny stock investment. In case you missed a selling point when it first opened, watch for that two and a half hour point and see if the penny stock price sets out to rise again.

- Don't ride a penny stock into the dirt! If you are down 10% to 15% on a penny stock position, it is time to cut your losses and get out. If you are well diversified, you will have other promising stocks to help you recover your losses.

- Don't purchase a stock depending on the number of shares you can acquire! We see too many people purchasing a $0.50 penny stock pick because they want to own 2,000 shares. It doesn't matter what the price is, remember you're out to make a percentage on the stock investment.

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