Penny stock trading is fun. There are very few other markets that nearly every investor, regardless of account size, can trade like a professional. In addition, the upside potential can be huge in penny stocks.
Just to be sure there are also high risks involved in all aspects of the penny stock market. These risks are what create the high rewards possible. In the stock market risk equals reward. In other words, the higher the risk, the higher the reward—generally speaking.
Understanding the risk is why it is critical to follow certain rules when you buy penny stocks.
Here Are Two Penny Stock Rules You Need To Know:
1.Allocate A Small Relative Amount
Never bet your entire portfolio on a penny stock. It doesn`t matter how confident you are in the position. Only use money you can afford to lose when trading penny stocks. Remember, anything can and does happen in the penny stock market
2.Diversify among multiple penny stocks
Risking too much money on a single penny stock is one of the top reasons traders lose when trading penny stocks. It is better to spread your investment across multiple stocks in the anticipation one or two will be huge winners. If you bet everything on one stock, it is very likely that you will be wiped out. Diversification is the name of the game. Professional penny stock traders may spread their investment across several dozen stocks at a time. Many of these stocks will lose money, but the ones that outperform will more than make up for the multiple losses. Remember, when trading penny stocks expect losses. The big winners will more than take care of multiple small losing trades.
Source: http://tradingtips.com/daily/penny-stocks/follow-2-penny-stock-rules/