All over the internet I hear people trying to pick the best penny stocks. They buy stocks that are trading at $.02 and hope that they will go up.
The main reason behind this is that those stocks are cheap. It is relatively inexpensive to buy tens of thousands of shares of penny stocks. Then if the price goes up they can make a fortune. The problem with this thinking is that penny stocks probably will not go up. They are penny stocks for a reason.
If a stock makes it too low there is a reason for it, and there it is extremely unlikely that it will go up. It is just not a good buy and ‘smart money’ knows to avoid it. If the best investors do not buy these stocks there is no reason why anyone should.
Because the smart investors will not invest money in penny stocks some people try to buy a lot of the stock and sell it once it goes up. This theory seems to make sense. If you buy $100,000 of a stock trading at $.15 that stock is going to skyrocket then you can just sell it.
This is called pump and dump and is highly illegal. It can and has sent people away for a long, long time. Another form of this is the people who try and pump up this hot penny stock by telling everyone to buy it. Of course the stock goes up because everyone buys it. Then the owners sell their stock and it crashes.
It is not worth it to try and use this technique to buy and sell them. This causes legitimist investors to lose money. It is also very easy to make big money in the stock market without having to risk going to jail. It makes you wounded why anyone ever bothers doing something that will put them behind bars.
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