Penny stocks by definition are stocks that are trading at or below $5.00 a share.
Except for the fact that they are not traded on the major stock exchanges are very much like regular stocks. The idea of trading penny stocks is the same as regular stocks, trying to buy low and then sell high. This is where you need to keep in mind your strategies for day trading.
Penny stocks are far more volatile than regular stocks and this is their major advantage as well as their most important disadvantage. When dealing with them you are literally trading for pennies per share, or for as much as a couple of dollars. A penny stock is able to (and often do) double their worth in a single day while it could take weeks, months or even years for a normal stock to do the same. The fact is it is much easier for a stock priced at 1 cent per share to build up its value to 2 cents per share than it is for a stock worth $30 a share to double its value to $60 a share. These are some of the reasons to build and work with your strategies for day trading.
Bad news: These stocks can be so volatile and you could lose all of your total investment in a single trading day. It’s not unusual for a stock worth 1 cent a share to go to nothing quickly. Normal stocks are able to also go to zero but they will spend a much longer time period doing so, giving the investor a window to sell his/her position and still preserve a little of his/her investment capital.
Penny stocks do not always preform as one would think after researching the track record of a company. In the area of this type of stocks, one often sees good firms going down and bad firms going up.
You can quickly be blind-sided by penny stocks if you are not watching closely being prepared to sell at an instant.
The good news: Gigantic percentage increases quickly with only a trivial amount of dollars at risk and, while you can nearly lose all or all of your investment capital all most instantly, you won’t be injured that much should you have only used a minor part of your entire net worth. Certainly, risking a penny and having two pennies tomorrow may not change your life that much this cause you to be tempted to try to double a much larger initial investment. Of course, Risk is Risk and there is more risk than buying bonds, blue chips or defensive stocks – but this added risk is tempered with the possibility of making the bigger gains or profits. So having strategies for day trading will give you an advantage by having a plan. Because of the volatility, you should never put up more than you can afford to lose.
How, then, can you move the odds to your favor? It’s all about choosing the best penny stock. To begin with use professional stock picks from a reliable stock-picking service. Make a list of the 10 best penny stocks from the stock picking service and then do your own research. Put these ten stocks on a spreadsheet and provide columns for company earnings, book value and so on.
As stated above, These stocks do not operate as you might think from their track records. Going through the above exercise is not without value. Listing the 10 stocks on a spreadsheet allows you to see easily which one of the 10 has the best chance of succeeding. After entering your buy and keeping an accounting of the exact results of all 10 stocks, including the ones you did not buy. This will be a great learning tool for you. This is all so the start of your beginning to creating your strategies for day trading.
Learn from your past mistakes. Try to records of what went wrong and why. Don’t redo the same errors again. Observe what other investors are doing and learn from their wins and losses. If the value of a stock is low, try to find out if it is just because it has not yet been discovered (first) or (second) if the business is in financial trouble. Buy the first, never the second.
In the event that you have a huge win of one hundred percent or more, it’s time to sell all or a part of your holdings in that penny stock. There are a number of ways to achieve this. You could sell fifty percent of your shares and let the other half ride, or, you might leave 1/3 in, sell 1/3 to put in your pocket and then invest the amount of the final 1/3 in another penny stock. Don’t get greedy and hold onto a stock past its time. Remember what goes up must come down and penny stocks usually do that quite quickly and without warning.
If the stock keeps going up after you have dumped it, don’t worry about it. There is always another ship coming in five minutes. The whole idea is to acquire under-valued issues and then sell them before they become over-valued. Never acquire or dump penny stocks for emotional reasons. Always go by the numbers and stick to your strategies for day trading with penny stocks.
Finally, be careful about hot penny stock tips from promoters. Promoters acquire a penny stock and then try to convince everyone else on the planet to acquire the same stock, thus driving the price up. This is a set up because they made their buy before you did, and now they will make a 100% gain or more before you can really profit, then dump the stock like a hot potato causing a rapid and unexpected descent in share value at your expense. This is why I say do your home work and get your strategies for day trading in order through building your knowledge and expertise.
Good Luck and don’t forget to learn before you spend a lot of money in investing.
Kevin S. is an online product reviewer you can learn more about
investing by visiting: