Since I’ve started trading penny stocks, everyone is always asking me how penny stock picks and penny stock alerts work and IF they really work or if they’re too dangerous to actually trade. Well, the truth is it’s a little bit of both.

First of all, let me explain what a "penny stock alert" actually is. Penny stock alerts are what newsletters send out to their readers to let them know about hot penny stocks. You know, like a penny stock that’s on the move. These can be takeover rumors, unusual trader activity, insider trading, good news, rumors, undervalued companies, etc.

When the newsletters find something that they think can make you money, they sound you out an email. Does it work? Definitely. Some of the picks I’ve seen have gone up hundreds or even thousands of percent in days, sometimes even in one day. So if you’re wondering if it works, it most certainly does.

Then of course it sounds a little too good to be true, which brings on the next question I always get, is it risky? The answer again is…definitely. Penny stocks are very volatile, which means they can move up very rapidly and make you a ton of money. They can also move down very quickly, and cost you money as well. So they are certainly risky little fellows.

So knowing that it DOES definitely work, but that it is also risky, the final question is…is it worthwhile? Well, unfortunately I can’t answer that for you. What I can do is tell you that for me it’s been extremely worthwhile. I’ve made hundreds of thousands of dollars from penny stocks. In my opinion the key is risk management, you’ve absolutely got to make a plan and stick to it. Realize that some of these "hot penny stocks" are actually going to be losers, so be prepared to cut your losses if the trade goes against you. The majority are going to be winners, so be sure to sell all or a portion of the stock while you’re up, so you can guarantee you make some profits. Don’t be too greedy!

Some of these penny stocks make huge runs, but then fall back down. So you never want to wait until they fall to sell them. In my own personal opinion, I think if you’re up 50-100% you should sell. You may miss a big 300% run, but you’ve still guaranteed yourself a big profit. Also, don’t EVER let a trade go too far against you. Most people I know will let themselves go down about 15-20% if the trade goes against them. If half the penny stock picks are winners and you make 50%, and half are losers and you lose 20%, well…you do the math. From my experience, more than half the picks I’ve been trading are winners so usually the math works out a lot better for me.

There are a few good sources of penny stock picks that I’ve found. I think the most reliable and consistent free service is http://pennystockalerts.com/