Just looking at the name, you might think penny stocks are a good way to make your day trading profits slow to a drip, drip, drip. But with the correct approach and diligent daily management, delving into penny stock trading can be a leap forward for your bank account and for your trading acumen.
Day trading penny stocks is not for the inexperienced. The pull of playing down in the cheap stocks brings in a lot of people that think it is super easy. Then they end up losing their shirts pretty quickly. It is a lot harder than you might think. Only about 10% of traders actually make money. The rest are just giving their hard-earned cash away.
The trick is to find the small handful of stocks that are poised to make a big move, just before they make that big move. Of course, I say trick, like it is a simple formula or easy pattern to spot day to day. It is not. It takes months of studying charts and the daily performance of penny stocks and small-cap stocks in order to be able to spot the movers before they move.
First, let’s define exactly what penny stocks are. Stocks trading under $5.00 per share are penny stocks. Back in the day, it used to mean shares that were trading under $1.00 or, literally, for pennies. But these days the benchmark has shifted.
One of the keys with penny stocks is to maintain a decidedly short-term outlook. You can’t be investing in these companies for the long haul. You need to get in and out. The balance sheet and fundamentals of a company that would make a terrible long-term investment might be just perfect for someone looking to get in and out quickly. With small companies that have terrible balance sheets, any overnight good news could send the stock soaring up, then crashing down in just 12-24 hours. That is why you need less of a Warren Buffett view of the world and more of a corporate raider view of the market.
Here are a few tips for when you get into penny stock trading. First, avoid OTC penny stocks like the plague. Over the counter stocks are subject to less regulation and oversight, which means they are much more likely to be illicitly manipulated. Second, only trade a high volume of penny stocks. When you see breaking news on a small company in your sights, that is the time to get in, because the trading will go up to 40 or 50% of the normal daily volume.
And think small. Don’t look for the grand slam every time, making $50,000 on every penny stock trade. Look to hit singles and doubles, racking up profits over time. Patience is the key.
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