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The best police officers are very often the ones who work the worst, toughest neighborhoods, because they constantly get the most work. They stay sharp, learn the most lessons, and improve dramatically over short timeframes. The same thinking can be applied to investing in the stock market. It's the penny stocks that have the most action, the quickest moves, and the greatest volatility. Along with this, it is widely understood, comes the greatest potential for gains. However, it's their efficacy as a teaching tool that truly makes them beneficial investments for new and experienced traders alike. Some of the reasons for this include the underlying volatility of the shares, the magnitude of the price swings, and the time frames involved. At the same time, investors who could otherwise have only afforded a stake in one or two blue chip equities now enjoy a whole raft of choices and generally end up involved in multiple companies. Consider the volatility of penny stocks. While many count this as a negative, it is actually a necessary ingredient in the argument that lower priced shares make for great teaching tools. Investors need to not only keep a close watch on their holdings, but also develop an understanding to react quickly, decisively, and accurately. Scenarios that may take years to appear with blue chip holdings, come to pass dozens of times, or even hundreds of times, over that same time frame. Think about the size or the price moves in penny stocks. If your large cap equity increases in value 15%, there really isn't any major decision that is needed to be made. Contrast this with lower priced shares, and some of the 50% or 100% spikes and dips that they commonly experience. These moves in the underlying shares are meaningful. They earn your attention and thought, and traders have very little choice other than to react, and in so doing, they gain valuable experience. Penny stocks make their moves, whether to the upside or downside, in much less time. Price moves of 75% can happen with blue chip stocks, but that will generally take years. With penny stocks, you may be looking at a similar situation, only this scenario presented itself in months, or weeks. With the shorter time frames, investors in smaller equities face multiple experiences. They hone their skills from many angles, and still have plenty of time left over for more learning.
Investors can buy more of the low priced shares, or pick up multiple companies with their small amount of investment dollars. Instead of only owning IBM, for example, you could hold shares in three or six different companies for the same capital outlay. Instead of only getting involved with one or two corporations, you could acquire a basket of them. Remember that each new company you research, and each company you follow, and each company you eventually acquire, monitor, and trade becomes another advancement to you stock market learning. While trading blue chips and mutual funds is a passive approach to investing, getting involved with penny stocks is incredibly active. The benefits can go well beyond the potential financial windfalls, and include learning more, and learning faster, and learning better than with just about any other equity channel. Some of the best traders in the world have been heavily involved in trading penny stocks. Many of them cut their teeth on the market's "low end." You'll also learn that the investors who are getting up to speed the faster, or those people that are continually improving their styles, and doing so at an impressive rate, are usually the ones that are open to, and active in, the tiniest of equities.
Learn more about The Penny Stocks Professional by watching. Visit Peter Leeds on his penny stocks YouTube channel.
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