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Stocks to Avoid When You’re Starting to Trade


If you’re thinking of getting started with a day trading strategy for the first time, then you need to know how to manage your risk. While you can’t let fear hold you back in the stock market, it’s also important to have a strategy for how you’re going to keep your potential losses as low as possible. One way to do that is to use a screening service like the Finviz Screener to narrow down your potential options. With a screener, you can filter through all of the available stocks on the marketplace and find the ones that suit you best according to things like trade volume, or price per share. Another way to reduce your risk of investing in a dangerous stock is to stay away from properties that are known for being less than reliable. Here are a few options that first-timers should avoid.

Penny Stocks

While it is possible to make money in trading penny stocks, more often than not, you’ll be better off avoiding them when you’re just getting started. Penny stocks are generally cheap because the business that they’re representing isn’t established in the market yet. This means that you won’t be able to find a lot of information online to tell you whether or not your investment is a good idea. Additionally, it can be tempting to purchase penny stocks on dark trading platforms which aren’t regulated by the FDA. If you don’t choose the right penny stock, you could end up being the victim of a scam.

High-Risk Stocks

When a large or established company puts its stock on the market, those shares are referred to as Blue Chip stocks, because they’re reliable and low-risk. However, newer and more volatile companies have far riskier stocks, which is why they’re often available at a lower price. There are many different types of high-risk stocks. Some stocks are risky because the business is new to the marketplace, others are risky because the company in question is in a dangerous position during the trading period. For instance, if a company is under investigation for poor financial practices, then you don’t want to get involved with their stocks.

Controversial Stocks

Finally, stay away from stocks offered by businesses who seem to constantly be in the news for all of the wrong reasons. The last thing you want to do is get involved with a business that is making its current and future investors nervous by engaging in risky behavior. You’re far better off starting your investment portfolio with a selection of well-respected and reliable companies – even if you’re concerned that you might not earn money as quickly this way. While sometimes you do have to take a risk to win big in the stock market, you also need to make sure that you’re not doing anything that could harm your future investment opportunities. Wait until you truly understand the marketplace before you consider investing in any of the majorly risky stock spaces and consider using a broker if you need extra guidance.

Do Your Homework

One thing about the stock market is that it is an aggressive meritocracy.  Either you make correct investing decisions, or you don’t.  There aren’t any ifs or buts about it.  A major component of doing your homework is researching the behavior of the management of the company.  You want to be sure they’re effective in their allocation of capital and that they have good relations with their workforce.  You’ll also want to check to be sure they’re not dumping their shares of the company.  If they are selling their shares, its a red flag that they don’t have confidence in the company.  A good way to do that is to check publicly available information like yahoo finance or a niche site like insidertrades.com.  They’ll both provide information on insider buys and sells.

BONUS: Use a Stock Advisor

To further avoid the risk of investing on scams, use The Motley Fool as your stock advisor.

So, what do you think ?