10 Secrets for Trading Penny Stocks

10 Secrets for Trading Penny Stocks

The allure of penny stocks is very simple. They do not cost a lot of money and will deliver you huge profits. However, trading penny stocks can be a quick way to lose your money if you do not know what you are doing.

Sure, it can be possible to profit when you understand penny stocks, but the odds will be against you if you do not have a decent amount of knowledge. And also, manipulators and crooks often dabble in the penny-stock game.

For investors who cannot afford shares in companies such as Google or Apple, the potential gains from trades like this are way too good to pass up. And there for, penny-stock trading thrives. With a small investment you can make a huge return, if you have a good strategy to follow.

One example would be, let’s say you purchase 10,000 shares of a $.30 stock for $3k. If the stock climbs to $1, you will have made $7k, doubling up your money!

Dollars and Sense

Penny stock promoters will usually attach a disclaimer to their E-mail, Twitter, or Facebook page, to try to take advantage of this language and to embellish and deceive. Penny stocks and their promoters are usually one step ahead of the securities regulators, however, just last month the SEC charged a Florida-based Firm, First Resource Group LLC, with penny stock manipulation.

Even with these clear signs of danger, many people can safely trade pennies as long as you have good knowledge and penny stock trading advice. If you ever find yourself on the other end of a telephone call from a penny-stock promoter, or you run into an advertisement that promises you dollars from your pennies and you decide that penny stocks will make you wealthy as it has for others, please remember these ten rules:

Ignore Penny Stock Success Stories

I am a penny-stock advisor who trades both long and short, and you must not believe all of the penny-stock stories that you hear touted in emails and on social media websites.

You must look into every company before you invest. You can’t invest into any penny stock as if it were going to yield you gold the next day. Unfortunately, this is what most people do, and they lose over and over. You have to find a solid source for penny stock information and utilize tools like Google Finance and Yahoo Finance to help you do research on companies that you are interested in investing your money with.”

Instead, focus on the more profitable penny stocks with solid earnings growth and have 52-week highs.

Penny stocks are usually sold off more than they are purchased, usually via tips that come in from E-mails and newsletters. Penny stock newsletters can help you find inside information on the next breakout penny stock. But, you must do your research and thoroughly look into each company before you invest.  Newsletters such as the Penny Stock Hot Newsletter will help you to learn a great trading strategy and also deliver you good tips.”

Sell Relatively Quickly

One good thing about penny stocks is that your shares can go up 200% to 300% in price over just a few days. If you achieve this type of gain, sell quickly. A lot of stocks that shoot up this fast will go down even faster. Many traders get greedy and lose all of their money aiming for a 3000% return. Because there is always the chance that a penny stock you are invested into might get pumped up, take your profits and move on.

Research What The Company Management is saying

In the dark penny-stock world, do not believe everything you read in a press release. You must thoroughly review a press release, take down notes and use resources such as Google Finance and Yahoo Finance to make sure that the press release adds up to be truthful.

Do Not Sell Short

Shorting pumped-up penny stocks may very well seem attractive, just don’t do it. Penny stocks are way too volatile, and if you are on the wrong end of the trade, you could easily lose up to 50% or more on a short squeeze. One other problem is that it is very difficult to find shares of a penny stock to short, especially if those shares made huge moves based on hype. Leave penny stock shorting to the professionals.

Keep Your Focus on Penny Stocks with High Volume

You should stick with stocks that trade at least 100k shares a day. If you are trading on stocks with low volume, it could be very difficult to liquidate your position when you need to.

You need to be aware of the number of shares traded and the dollar volume. I would also suggest that you trade penny stocks that are priced between 5 to 50 cents a share or higher. Stocks that are sub penny can be a very profitable investment, but unless you know what you are doing, it can equal a large loss if done wrong.

Buy the Best of the Bunch

I seek penny stocks that have had a credible news breakout. I love purchasing penny stocks when they have credible news that I can verify, also having a good penny stock source is required for a beginner trader.

Try to Stay Away from Trading Large Position

You will need to be cautious with position sizing. I have learned the hard way not to make huge trades. My rule is to never trade more than 10 to 20 percent of the stock’s daily volume. In addition to that, limit your share size so that you can exit the stock fast if needed.

Like a Stock, Never Love a Stock

Each penny stock company would like to make you think that it has a great story and that it will change the world. If you are entering the penny stock arena, be cynical, do a great deal of research and diversify.

Penny stocks may have a bad reputation, but if you know what you are doing, a lot of money can be made.