Set clear profit targets and stop-loss levels before entering a trade to avoid emotional decision-making.

Be skeptical of "hot tips" or social media hype. Penny stocks are prime targets for pump-and-dump schemes , where promoters artificially inflate prices before selling off their shares.

Treat penny stocks as a small fraction of your portfolio—typically less than 5% to 10% .

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Many penny stocks trade on "pink sheets" or the OTC Bulletin Board (OTCBB) rather than major exchanges like the NYSE or NASDAQ.