1) Always use limit orders.  Always.   Your order may be executed either lower or higher than the displayed quote.  For example, the fictitious company xyxy is quoted at .30 on the bid and .35 on the ask.  This means that if you place  a market buy for 1000 shares they should execute at .35 X 1000 = $350.  The market maker is required to fill up to 5000 shares when posting at that low of a price.  Unfortunately, sometimes they will fill some or none of the shares at the .35 and move up to .40 or .45 to fill the order. Supposedly a market maker will be fined for not honoring the quote but this happens very often.  Instead an investor should use a limit order at .35 (this takes the risk out of the trade).  Better yet, you should place various orders at different entry points - like 1000 shares at .33, and then 1000 at .31, etc. 

 

 

3) Don't be afraid to take profits.  If a stock runs up quickly on news or even for no apparent reason, you should sell some of your stake.  A good rule of thumb is the sell half your shares if the stock doubles.  Hold on to the other half of your shares (you never know how high a stock may go).

 

4) Never invest more than you are willing to lose.  Let's face it, microcap stocks should be treated as a very risky investment.