Rules for Trading Penny Stocks

When it comes to day trading a lot of people don’t tend to think of penny stocks. This is because they are the stocks that people initially think they can hold for a long time and profit when the company has grown and is constantly profiting. This is not always the case with penny stocks. A lot of times, these companies will go to zero, going bankrupt.

For this reason, it is suggested that you trade these stocks like a day trader, buying and selling quickly to profit. You may only profit by a small amount but if you make many trades you can rack up a good wage. Here are a few rules when it comes to trading penny stocks.

Don’t Believe the Hype

The first thing I want to discuss is the constant hype that is developed from the “gurus” and “experts” that have their own alerts systems. These individuals and companies often make out that trading penny stocks are fantastic and that you can profit enormously, claiming that many of their students are millionaires. Whether this is true or not, penny stocks should not be viewed as a get rich quick scheme and they are actually very hard to get started in. It take risk and practice to profit with penny stocks and you need to go in with a growing mindset and a willingness to learn.

Limit your risk – don’t trade large positions

It is important to take short positions on penny stocks and get out while you can. You should aim to make small profit on each trade and avoid trying to go for those 10K trades as you could end up losing all your funds. Only trade in small amounts and cut your losses early so you don’t lose too much. This is also important for beginner traders who need those easy wins at the start to get them motivated.

Make sure the stock has volume

This is a very important rule to play by. You need to be trading stocks that have a lot of volume to make sure you don’t get stuck with shares because no one is around to buy them. It is important to have a stock that is trading a lot at a low price because it will mean you can make a profit and then sell the share easily without any hassle. Also, stocks will low volume are likely to be involved with pump and dump schemes which is something you don’t want to get involved by.

Look for catalysts

Penny stocks are more prone to wild swing in share price when it comes to news and recent events. It is actually a tactic in penny stocks to use recent news as a way to determine whether the profit in penny stocks is about to sky rocket. When it comes to trading penny stocks, you should be doing the research to find hidden winners in the rough. Stocks that get mentioned more in press releases are normally more worthwhile but make sure that the writers/news is not incentivized by the company involved.

Conclusion

Penny stocks are very profitable if you know what you’re doing. You should always trade penny stocks and never aim for a long position as this can result in enormous losses. If you know what to look for when it comes to trading penny stocks you can make a lot of money and you should read the above rules if you want a chance at succeeding. With the right knowledge and discipline, making money with penny stocks can become a breeze.