Trading Penny Stocks

High Percentage Movers and Massive Gains

Learning how to trade penny stocks can be profitable on a massive scale! This much is true or you wouldn’t be reading a blog devoted entirely to trading penny stocks. Nowhere else within the stock markets, futures markets, options markets or currency market does there exist the possibility of daily percentage gains which exist in penny stock trading. No other trading instrument has the ability, on a consistent basis, to produce the doubling, tripling and even one-thousand percent gains which happen on a daily basis in this highly volatile market.

Stocks trading on the larger exchanges like the NYSEDOW and NASDAQ trade for much higher prices per share which makes it difficult to produce high percentage point gains that are commonplace within the OTCBB and Pinks Sheets penny stock exchanges. However, trading penny stocks successfully does not come without risks and a inexperienced trader could quickly lose some or all of their trading capital if a rules based trading plan is not employed and money management principles are not applied.

Trading Penny Stocks and Determining Your Approach

Before you begin trading penny stocks, you must first determine how you will be approaching the market. Many people begin trading or investing without a clearly defined plan and no predetermined goals setting the stage for disaster. Unfortunately, this is more the norm than the exception for people new to the penny stock market. Losses are inevitable when trading any financial market and experienced traders know they will incur losses over the course of their trading career and accept losses as part of the trading process. The difference between a successful  penny stock trader and a broke unsuccessful trader is how they manage these losses.

The low share price of penny stocks is probably the number one reason new and inexperienced investors are attracted to these markets. Larger amounts of stock can be controlled with less money which appeals to people who want to invest in the stock markets that really don’t have the money risk. I once met a fellow who was trying to earn enough money for a down payment on a house, put his money in stock market without a trading plan although he did have a goal (the down payment) and quickly found himself underwater. His initial trading capital was soon halved which he was hiding from his wife which added to the pressure of losing money he could not afford to lose. He began over trading his account in an attempt to get back to even and eventually lost all of is trading capital The point is, don’t begin trading until you are ready and make sure that losses will not have an adverse impact in other areas of your life.

The Fundamental Approach To Penny Stocks

How penny traders approach the market is unique to the individual trader. Some approach with a strictly fundamental approach. They will do days and weeks of research with a stock screener and build a list of penny stocks which they feel have potential and slowly reduce the list to just a few or even one company in which they have chosen to become a shareholder. They look at the sector and determine if this sector is hot or has the potential to come in favor soon, the financials of individual companies within the sector, share structure and other forms of due diligence. These type of people are general long term investors that have a plan and clear cut goals which is prudent investing.

The Short Term Approach For Trading Penny Stocks

The short term approach to trading penny stocks is altogether different than the fundamental approach. In fact, there are many different ways to approach the penny stock market using short term trading methodologies. These approaches are the reasons people love this volatile market. High percentage gains over a short period of time! These methods of trading can be characterized in two different methods, swing trading and day trading, with differing methods within each.

Swing Trading Penny Socks

If you are new to the penny stock market and seeking short term gains, swing trading is the ideal choice for inexperienced players. This does not mean experienced traders don’t utilize penny stock swing trading strategies because they do with excellent results. Swing trading tactics without doubt are the most used form of trading strategy in the financial markets. Before we get ahead of ourselves, we need to first understand what is meant by swing trading.

Swing trading by definition is a method of trading the market to profit from short term moves. Penny stock swing traders generally hold positions for a day or more, usually from two to five days, maybe even a few days longer. Holding a position for longer than a couple of weeks is also considered a swing trade by some although most would consider this type of position an investment. Although, not technically a long term hold as in fundamental type trading, swing trading is not meant to tie up trading capital in one position for an extended period of time.

When learning how to trade penny stocks, swing trading is ideal for those people that have full time jobs and can’t watch the market throughout the daily trading session providing an excellent opportunity for those less experienced to gain the confidence necessary to move on to the next level. As a trader seeking sort term profits within the penny stock market using swing trading strategies, we don’t need to know about the company financials or what product or service they sell. In fact, we don’t even need to know to the name of the company, all we need is a stock symbol.

One area of concern to the penny stock swing trader is money flow and in which direction. Is money flowing into the stock which is a strong indicator the stock is in favor and is a strong indicator higher prices can be expected in the short term. Or is money flowing out of the stock which indicates selling and possible depressed prices in the near term. The other area of concern is how can the swing trader take a position that is favorable and least likely to have adverse effects on his trading account? Swing traders rely on charts and technical analysis to determine these favorable or non-favorable conditions.

Day Trading Penny Stocks

Other traders prefer to day trade penny stocks although inexperienced traders should refrain from this form of trading strategy until they first become successful with swing trading. Day trading by definition is the opening and closing of a position all within one trading session. If you are considering day trading penny stocks you should first completely understand the pattern day trading rule or risk having your brokerage account shut down. The link provided has complete details about what you should know before attempting to day trade penny stocks.

Day traders need to have a sound foundation in technical analysis, charting formations and complete understanding of trading indicators to be successful. Many veteran penny stock traders prefer this type of trading strategy because no open positions are held over night. In other words, they have a completely “flat” account at the end of the trading day. This allows them to be worry free from overnight external market forces, both financial and geo-political, which could have adverse effects on issues held overnight.

Some traders will enter a trade at market open and ride a upward move the entire trading session from opening bell and only closing the trade right at the closing bell. Others will open and close multiple positions throughout the session closing all before the final bell. As you can see, there many different ways to day trade penny stocks but each way requires discipline on the part of the penny stock trader as well as a commitment to his trading system rules and the practice of sound money management.

Penny Stock Chat Rooms, Penny Stock List and Email Alerts

There are other ways for those new to trading penny stocks to pick up valuable information and techniques. By joining and subscribing to penny stocks newsletter you can stay up to date on which stocks are in favor and which ones have the momentum to possibly be profitable. The same stock newsletters, in most cases, offer email alerts which are used to alert their subscribers quickly about stocks on the move.

Penny stock chat rooms are also valuable resources of information since some have the capacity to host hundreds of traders throughout the day. With many eyes watching different stocks on a daily basis, you can see it isn’t difficult to locate stock on the move. Other important information can also be gleaned from chat rooms such as: trading techniques, indicators other traders are using in their trading systems, real time news alerts as they hit the wires. New and inexperienced traders can benefit from spending a couple of weeks watching as veteran penny stock traders play the OTCBB and Pinks Sheets exchanges

Learning how to trade penny stocks does require a bit of a learning curve on your part but the payoff of becoming a student of the penny stock markets are the potential of massive gains and amazing wealth building capabilities. New traders which take the time to learn t market through testing, education and experience tend to be the ones that turn into profitable veteran traders. Will you become one?