The hot topic in today’s stock market is microcap stocks. If you’ve ever wondered what they are and why they are making people a ton of money then read on and you will learn why they are so profitable.

If you have ever traded stocks or know someone who has invested or traded stocks then you will know that the blue chip stocks take forever to increase in value. They are high priced stocks too. You are lucky if you see a gain of 10% in one year let alone one week.

Microcap stocks are a different breed of stock altogether. First of all they are low priced stocks. Microcap stocks can easily gain 25% + in just one day. And if there is good news on a particular microcap stock then it can sometimes jump 100% and more.

Common sense will tell you that it is a lot easier for a stock to jump from 2 cents to 10 cents (500% gain) than it is for a stock to go from $20 to $100. Right? Well, that is exactly why microcap stocks are so lucrative and why smart traders include micro caps in their trading portfolio.

Now you might be asking what it is that makes micro cap stocks rise in value so quickly. It is almost always because of positive news announcements about the microcap company whose stock you are trading.

Let’s use this example: if a certain microcap company that sells shoes sends out an announcement that it has received a contract to sell its shoes in Wal Mart stores nationwide, any savvy investor or trader will jump at the chance to buy shares in that company. Profits selling those shoes in Wal Mart across the country are sure to increase! So the stock is a good value.

Now it doesn’t always have to be a big-time announcement it can also be that the microcap is climbing in value because of continued positive progress the company is having and which traders and investors are expecting.

It should be noted that sometimes positive news does not affect the microcap shares one way or the other. This is because of low trader or investor awareness. This low awareness is because microcap companies usually do not contract with investor relations firms and therefore, even with positive news, they have a hard time selling their stock. So just because a company has positive news it does not always mean the stock will rise in value.

To find microcap stocks that are on the brink of making enormous gains in value you have to look for one thing. VOLUME! It is the volume surges in micro caps that you need to see when you are looking for those big gainers.

High volume + rising stock price=buying pressure.

The trick for you is to figure out how long the buying pressure will last. This is where you have to be a really, really good researcher or hire a researcher to do the work for you.

Don’t be in a rush to cash out or reinvest your penny stocks. They can take awhile to make substantial gains.

You must watch your trades and make sure you know it is a good time to sell and cash out your trades. Timing is everything. If you sell too soon you could lose out on a major move up in the stock and if you wait too long your investment could turn south very fast.

However if you need the money you should consider selling just a small percentage. This way if the stock’s value moves up you won’t miss out on the potential gain. And you also get to enjoy at least some of your profits in the moment.

A very common mistake investors make is to cash out based out on emotions only without any logical input. Either they panic and sell too soon or they get greedy and stay too long. It’s a balancing act.

Do your research and sell only based on what you know is true about the company’s stock and keep your emotions in check. You’ll know how the stock is performing by watching it, considering any news that comes out and any other information you have gathered about the company since you bought the stock.

When you do sell take your original investment and re-invest it. Spend your profits if you like or put them aside. You can then take your original investment and buy another stock. Or take the profits, but not your investment, and reinvest your profits in another stock. But don’t use both to reinvest. If you take the profits and put your original investment aside you always have that amount to invest with again if you lose your profits on the second trade.

If you are doing really well trading penny stocks don’t allow yourself to get cocky or greedy. Continue to prudently research any future trades. Think before you trade. Have a good sound financial reason to invest in another stock. If you go off overconfident that is when you will fail. If you succeeded with a plan the first time don’t abandon that plan on your next trade or investment.

By using and sticking to a plan that works you will continue in an upward trend and when you do have setbacks, and everyone does, you will know what went wrong and adjust your trades the next time. Knowing why your penny stock investment went wrong will help you avoid the same mistake in the future. And that will help you have more winners than losers.

Another way you can control your urges to be greedy or react with fear is to enlist the services of a penny stock newsletter.

When you are looking to trade a microcap/penny stock the most vital key to your success will be discipline. It is so easy to be un-disciplined when trading these types of stocks because the thrill of the fast buck is a great distraction.

Being disciplined sounds like a pain and an effort. Well it is an effort, but one you must make if you are to make good money trading microcap/penny stocks.

If you were to buy a stock and say it is going up and you watch it go up to about 75% of your purchase price in the first two hours of trading. Well, that is very exciting and the possibility of it going even further makes you want to hold on to that stock all the more. Because let’s face it you’d really like to see it go up 250% wouldn’t you?

But for a disciplined trader 75% is a very nice profit right now and one that is definite. A disciplined trader will take his or her profits while they’ve got them. They won’t gamble on a better payday. Yes it will probably hurt you if it does go up 250%. But what if it goes the other way and just because you let your emotions guide you, instead of using discipline, you lose it all. The 75% would be looking really good to you – wouldn’t it?

By using discipline and selling anywhere between 50% to 100% profit and moving on to the next microcap/penny stock that shows positive momentum you will not only be in the profit zone but you will now have more capital to invest in the next good microcap trading opportunity.

Traders and investors who are not disciplined and fall into the emotion trap get slaughtered!

Now let’s look at the reverse situation. Say you buy a stock and within the first two hours it drops 50% due to bad news that you were not aware of until after the selling started. As a trader or investor you already know that after there is heavy selling pressure it will take a while for a stock to recover. So, instead of accepting and cutting your losses you hold on to it because you are hoping it will recover, maybe in a few weeks. There go your emotions getting out of control again. You now have the potential for a major loss and could be holding a stock that may never recover.

A disciplined trader will find the reason behind the sell-off and if the disciplined trader sees no hope for this stock he or she will sell and at least recoup some of the money invested rather than wait and see what happens and lose it all.

If you hang on to the loser, not only do you have a potential of never recovering your capital but you have also tied up your trading capital and may miss some great trades as a result.

Whenever you are trading or investing always exercise discipline, try to assess the situation and use common sense. You must take the emotion out of your trading. In other words, fear and greed are your worst enemies. Disciplined, successful traders never let those two emotions rule their trading decisions.

Whether you are a new or experienced trader it is always good to use some kind of stock picking newsletter advisory service to guide your trades. A newsletter advisory stock picking service will help shorten your learning curve, do the research for you and get you in and out of stocks in a way that will maximize your profits and keep your losses to a minimum. In other words they keep you disciplined.

When you think of penny stocks one of the first things that comes to mind is that they are cheap so you don’t have much risk  since you are investing very little money to get started. But there are other factors that can make them riskier than other stocks and if you are aware of them and are a savvy investor you can limit some of that risk.

Although you may think your risk is low because you don’t have to invest a lot, keep in mind that if the company has bad news or goes bankrupt right in the middle of your investment you can lose everything.

You must do your due diligence when trading any stock, whether you are investing a little or a lot. Do your research and look very carefully at the company’s financial history and their expectations for future earnings before you buy them.

Be mindful that Brokerage firms that help penny stock investors trade are required to disclose the risks and tell you exactly what the risks are before you trade these types of stocks.

Penny stocks are not traded as often as other types of stocks, the volume is low so you could get stuck holding a worthless stock if it goes south. Because they are not traded often the prices you are seeing could be inaccurate.

You also have to wade through all the hype from penny stock promoters. Don’t fall for the notices in your email inbox that promise this or that stock will get you a fast fortune. Those are usually pump and dump promoters and you should run away from them as fast as you can.

These pump and dump scam artists will sometimes buy up a ton of these types of stocks to inflate the price and make it look like a good thing. They offer them to traders and investors at a higher value than what they are really worth.

It is also true that some really crooked brokers will charge much more for their commissions than they should. Make sure you are not being overcharged. Because not only can you lose money on the trade but you can lose more than you should on the commission.

Most brokerage firms operate on a fair basis you just have to be careful that you have a broker who has your interests in mind.

Another way you can minimize your risk is to subscribe to a reputable penny stock newsletter. These newsletters do the research for you. They pick these types of stocks with the best potential to profit and give you buy and sell signals so you are not paying too much and you get out with a decent profit, sometimes even a profit that borders on a fortune.  These services have to make you money because if they don’t they will lose you as a subscriber.