Those looking to get started with penny stocks often suffer from imposter syndrome.

That is, they don’t feel like they’re in the skin of the investor. Despite having all the tools, knowledge and potential wealth right in front of them, they just don’t know if they’re on the right path with their penny stocks. This ultimately leads to doubts and various assumptions that keep would-be success stories from coming true.

Casting doubt from your mind might be easier said than done; however, it’s essential to keeping yourself on the course to seeing a positive ROI for your trades. Outlined below are three major mental traps and assumptions that face every penny stock newbie which need to be addressed sooner rather than later.

You Don’t Have Enough Cash to Invest

Perhaps the biggest draw of penny stocks is pretty straightforward: such trades ultimately keep more money in your pocket and allow you to experiment versus pricier stocks. That said, many new traders feel that they just need to throw more and more cash at bad trades and then blame their own wallets for the lack of success.

Ultimately, it all comes down to strategy. Tim Sykes’ Penny Stocks 101 Guide outlines the variables of any given stock’s potential that goes far beyond its price tag. From assessing volatility to picking out the right time of day to trade, there are so many moving pieces of a good trade. In other words, don’t assume that you need more money when in fact you probably just need a better strategy.

Your Next Investment Will be “The One”

When you start chasing wild dreams of riches and get away from making sound decisions, trading becomes akin to gambling. Ask yourself: can you really afford to gamble with your hard-earned cash?

This mental trap is a two-way street. Many penny stock traders hold out blind hope that they’ll be investing in the next Apple or sleeper company that’s going to totally take over the world. 

Yes, there are some major companies that were once penny stocks such as Ford and Samsung. However, the reality remains that such trades are often few and far between: it’s more much prudent to stay rooted in reality and follow the money instead of hope.

You’re Always Getting a Great Deal 

If you see that a stock has dropped from a few dollars to a few cents, it’s only natural to assume that you’re getting a great potential deal by snatching it up, right? However, those bargain stocks mean absolutely nothing if there’s no hope of those shares rebounding. It might be enticing to grab every cheap stock you can in hopes of something turning around, but again, you’re treading the fine line between investing and gamxxxxx.

Don’t assume that you’re getting a great deal until you’ve actually done your homework. Assuming that any given stock can go lower will only drain your resources and leave you less room to spend when it’s time to seek out a more legitimate trade.

Penny stocks can be a potential goldmine for seasoned traders and newbies alike; however, these mental traps can arise at just about any time. Take the time to learn to avoid these mental snafus to avoid sabotaging your own success as a trader. 

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