By admin2 | June 18, 2009
The Pink Sheet market is a unique financial market in many senses. It lists some of the lowest priced stocks with high growth potential and also lists some stocks with high susceptibility to scams. That is why trading pink sheet stocks demands better strategies and skills. As a trader, you need to sharpen your basic trading skills such as stock research, stock screening, market timing and risk management. Brokerages, however, are becoming increasingly more discriminatory on accepting pink sheet trading and certificate deposit. NobleTrading is a pink sheet friendly broker/dealer. To open a new account visit http://www.nobletrading.com.
Many traders agree that pink sheet stocks (stocks with symbol PK) carry more risk than major exchange traded funds; because they are low priced, are of small/less important companies and are avoided by big market players such as institutional traders and funds. But it is also true that some of these stocks show high growth rate and offer better returns. This is because of the fact that a small company can easily double or triple its size (and its stock price) compared to a big blue-chip company.
Here are some basic tips for pink sheet stock traders.
Conduct broad research – The major disadvantage of trading pink sheet stocks is lack of fundamental info. Get all the information you can get; and also do better technical analysis to overcome the lack of fundamentals.
Use tight stop-losses and targets according to your trading style. The lack of liquidity of pink sheets makes them highly volatile. Thus holding a stock for an extended period can harm you.
It is better to avoid stocks at the extremes. For example, avoid stocks showing extreme positive/negative growths, and stocks which are extremely low/high priced.
Pay less attention to rumors and spam mails. It is better to avoid all those junk mails which describe this week’s/today’s hot pink sheet stocks. Use your common sense to find better resources.
Be careful with your position sizing. Pink sheet stocks, with their cheaper prices, can attract traders to trade with big position sizes. Large position sizes can be good only when you are trading a highly liquid stock with less price volatility or when you are trading for very short term.
Online pink sheet trading. Now there are some brokers who offer online trading of pink sheet markets on powerful trading systems. This offers traders more flexibility, technical tools and time for technical analysis, which will enable them to make better trades.
Consistently evaluate your performance and strategies. Going through your past performances and strategies is vital to survive in the ever changing market.
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