It’s difficult and unexciting to play the game when you don’t know the rules but it’s easy to play it when you do know the rules. The same thing applies to business strategy. If you know what you are doing, you’re good, but if you don’t, the lack of information will cause you to lose your money.
The business of trading penny stocks requires the same from you. It’s important to understand and educate yourself related to all the information and strategies along with the advantages and disadvantages of it. If the trade works out, you will get huge profits. And if it doesn’t, you can always try again. But of course – the money lost in the first investment won’t be returned.
Penny Stock Trading:
The stocks that are traded under $5 are known as penny stock trading. Another name for penny stock trading is penny stocking. These stocks are created by small companies to gain larger profits and grow their business.
These stocks are traded through electronic transactions over the counter. They are not the ones that are traded daily on major exchanges. Penny stock trading is perfect for those who want to invest in low price stocks to turn a small investment into a big amount swiftly.
Here is a small example of profit that you can make: you buy 10,000 shares of $1 stock for $10,000. So if you sell them when the stock reaches $2, your profit would be $10,000.
Along with profit, there is huge risk involved in it as this trading business is unstable. Sometimes the prices do not increase which results in loss and other times the companies that create penny stocks are found as scammers.
It is very important to make sure that the companies that are selling shares are registered and not involved in bankruptcy.
If you want to learn more about penny stocks you can do so here: https://www.timothysykes.com/penny-stocks/
In this article, we will discuss 10 ways through which you can start trading penny stocks yourself.
- Plan a Strategy:
Know that you will not get it right most of the time. To overcome this fear, you should make up a proper strategy where your first focus should revolve around investing less amount of money in the beginning. This fear will also lead you to give your best. You will be determined to research and calculate the risk factors before beginning to start penny stocking.
In this way, you definitely have higher chances of gaining success as mentioned earlier, it’s important to understand before diving into a business or trade. Planning a strategy also requires you to learn a variety of trading styles.
- Set Boundaries based on Risk Tolerance:
Trading penny stocks require a lot of patience and tolerance. A person should be patient enough to wait for the prices to increase and tolerant enough to experience the loss. The loss is mostly experienced because of scammers or because the prices do not increase. The first advice to set up a boundary is to not spend a huge amount on your first investment.
Make sure to only spend funds that you can afford to lose.
Another major advice is to collect complete and significant information about the company that is selling and creating stocks. IIf you buy stocks from the bankrupt company, the shares will be canceled and will become completely worthless.
- Buy Low Priced Stock on Big Volume:
Timothy Skyes has named this strategy as “gimme”. It is considered a key pattern which hugely emphasizes on buying low priced stock breakouts on bigger volumes. Here it is focused on buying a huge amount of stock that is expected to be sold in higher volumes just because of the company that is creating the stock. When the creators of stock are good at marketing, their stocks are sold rapidly as well as they also get investors quickly.
- Be aware of 52 weeks high/low stock:
This is one of the major ways to find out when to trade a stock. The 52 weeks high/low stock is considered to describe the highest and lowest price at which the stocks were sold the previous year. It is observed as an important factor in determining and calculating the current and expected value of a stock. It is not confusing to implement this strategy once understood completely.
Buying a stock when its value exceeds the 52 weeks high is advantageous because then the stock sold will not lose its value as there will be enough momentum to still gain profit.
With the help of this technical idea, the investors and traders examine and predict the prices and their enhancement.
Research conducted that the smaller portions of stock traders were beneficially profited from this technique as they kept a small number of their stocks to sold them out just when it was necessary.
The smaller portions are sold easily because there are not many buyers in the market. Once they see the increased rate, they sell all of it. In this way, they do not have to wait for another increased rate opportunity with the leftover stocks that were not sold, unfortunately.
- Trade Smaller Portions:
It is highly recommendable to buy the best bunch of penny stocks by researching satisfactorily. It means buy penny stocks when they have good earnings over the counters. Penny stocks are not the stocks that are high all the time and that is why proper strategy and research are required to know when the prices increase and decrease.
Using a 52 weeks high/low technique may help traders and investors t buy the best bunch as well sell them at the right time by grabbing the opportunity. They only need their research to be perfect in order to predict the correct time of increased rates.
Trading smaller portions of penny stocks mean “You need to be careful with position sizing of the stocks.”. He further described that his rule is not to trade more than 10% on a day to day basis to reduce the risk factor.
Source: marketwatch.com, timothysykes.com, thebalance.com