As an affordable alternative to traditional stock and bond trading, many people are turning to investing in penny stocks. These are stocks that are sold for less than $5 per share. Often, you’ll find smaller companies and start-ups in this space.

Penny stock investing so attractive because of the price and potential upside. Keep reading to learn more.

Consider Your Strategy

You always need a strategy for investing. This is because you never know when you’ll run into a stock with huge potential. To illustrate, Monster Beverage Corp. had shares worth $1.28 in 2004. Yet, by 2006, their shares were over the $100 mark.

That is an increase of over 7,800 percent. This is just one of many reasons why it is essential to invest properly and strategically. Remember, while there can be a huge upside, there is always a risk associated with investing as well.

Some of the stocks will have very little information. So, have a strategy in mind for what will cause you to buy and what will cause you to sell–and, stick to your strategy.

Don’t get caught up in a whirlwind of emotion. It is absolutely necessary to use your buy signals to guide your investment plans. Otherwise, you could lose money quickly and lose motivation to continue investing.

Forget About Dividends

Only use a specific amount of money set aside for investing. Remember, high risk also means high reward. That is not to say that penny stocks are 100 percent risky. That isn’t the case at all if you look at two former penny stocks, Apple and Monster Energy Corp.

So, don’t look at dividends when considering your penny stock purchase. You want to focus instead on companies that have something to offer, that is in demand.

Look at Earnings

It’s so easy to get caught up in a new stock darling, but you must keep emotion out of investing. Instead, look at sales numbers, quarterly earnings, expert analysis and other hard figures that deal with facts and not emotion. Don’t pay attention to tips or rumors.

Even if you aren’t investing a lot of money, you still want to make a profit.

Set Limit Orders

During the course of the trading day, penny stock prices can fluctuate dramatically. That can feel like a bit of a rush, and it is. Nonetheless, you want to use limit orders and trade during the day.

Pick an entry price, then set your limit order. Moreover, set a downside limit when selling. If a day doesn’t hit any of your limits, you can wait until the next day that it does.

Have a Price Target

Depending on how aggressive you want to be, you might look at up to 50 or 100 percent gains as your target. You can even set it as low as 30 percent. Yet, you must have a sell target.

Penny stocks are not like traditional stocks. You don’t always want to buy and hold. Plus, it’s important not to get greedy–this is how people lose a lot of money.

Once the stock hits your price target, it is time to sell. This way, you can protect your gains.

In Conclusion

There isn’t any question that you can make a lot of money in penny stocks. You just have to focus on your strategy and make fact-based decisions.