Tips for Trading Penny Stocks

When it comes to trading penny stocks, there is always a lot of risk. You have to be careful when it comes to trading them because, if you pick the wrong one, you could lose all your money. This is why having the right knowledge if very important when it comes to trading penny stocks because it can save you an absolute fortune (and make you profit in the process). There are a number of tips you need to follow if you are to learn how to trade penny stocks and it is important you listen the information given to you. This article will go through a number of tips when it comes to penny stocks that will help you when it comes to making your first trade.

Don’t believe the hype

The first thing that I want to say is you should always ignore the hype developed around penny stocks. There is way too many success stories on the internet have how one individuals invested $500 and made $200K in a month. Sure, this can happen and if you know what you’re doing this is possible. However, for most beginners this is not going to be an easy target. When first starting, you may end up losing quite a bit of money and success comes with practice. Don’t think you can go in and immediately make 200K because you’ll bite more than you can chew.

Focus on the price action

Price action and share price movement is important when it comes to penny stocks as this will tell you the general direction the stock is moving. If you see a steady increase the company might need to be looked into a little further. This is important because if you notice the share price has been slowly decreasing it may mean the company is not taking off as hoped. You can also identify spike in price according to news and catalyst which further informs you about the stock.

Make sure you have the proper tools

This is one of the most important tips I can share on this list. If you want to have success when it comes to penny stocks, you need to have all the tools at your fingertips. Professional traders are going to be investing in the proper tools and equipment to give them a fighting chance. You need to do the same. Investing in a proper broker is the first step and discount brokers are always a fantastic option. Platforms like ETrade and Charles Schwab are some of my personal favorites.

Make sure the stock has volume/liquidity

Something that we often see with beginner traders is that they will go into a penny stock that is very low in liquidity. This might seem like a good idea because the prices will be low but this also makes the stock incredibly violent when it comes to price swings. This means that you may experience people doing pump and dump schemes or you may find it difficult to sell your shares, as there will be less people buying. Stick to high-liquid penny stocks that are less affected by volume.

Conclusion

Getting involved with penny stocks is very tempted but can be dangerous if you’re not sure what you’re doing. It is important to go in with some sort of strategy if you don’t want to lose money. If you want to find more success, we suggest you follow the above tips. They will benefit you enormously when it comes to making your first trade.