Who wouldn’t get excited about the prospect of buying something for dirt cheap and unloading it for a fat profit? Who wouldn’t get thrilled to invest in something that’s very easy to get into due to low stock prices and make decent returns in a relatively short period of time? These and many other features are what make the penny stock market (whether over the counter, pink sheets, or bulletin board) so exciting. Unlike the main line regular stock markets like NASDAQ where getting into stocks require paying an average of $5 or more per share (except for depressed stocks that might get delisted soon), penny stock let you trade stocks in heavy volumes without it burning a hole through your pocket. Also, given the huge volumes involves, even if you’re only paying pennies per stock, you can still make quite a bit of money if the stock you’re trading edges up high enough. Compare this with trading Google stock which requires a lot of appreciation for you to make money. With the penny stock market and penny stock trading, you can earn money trading stock by focusing on volume while regular markets require a lot more investment capital from you and a stronger upward trend or appreciation for you to make money.
As exciting as trading in penny stocks may be, it is even more exciting and potentially rewarding if you day trade penny stocks. That’s right-by getting in and out of penny stocks on a daily or close to daily basis, you might realize some gains you can’t enjoy with more expensive stocks at regular markets. You can focus primarily on short-term movements and volume and make a decent return. With that said, keep in mind that day trading penny stocks is not necessarily a fast track to instant riches. In fact, no such fast track exists. Day trading penny stocks require work. It also requires timing and patience. Still, day trading penny stocks can be quite lucrative if you keep the following factors in mind.
Don’t get caught up in the day trading hype
There are many penny stocks on the market and a number of them are thinly veiled pump and dump schemes. These schemes involve promoters buying up lots of a company’s worthless stock, hyping it up via press releases, message board posts, or social media posts. Once the stock has appreciated enough, the promoter or promoters start dumping the stock. The new investors end up losing big. What’s the best way to avoid pump and dump schemes when day trading penny stocks? Very simple-don’t get caught up in the hype. Just because you are day trading penny stocks doesn’t mean you forget about researching the nature of the company behind the stock. You still need to do due diligence. You shouldn’t just focus on momentum. Instead, pay attention to fundamentals.
The penny stock fundamentals still count
The secret to day trading penny stocks is not much different from the secret to successfully day trading regular stocks: you need to stick to one or a very few stocks and trade them frequently. That’s it. That’s all there is to it. Very straightforward. Too many people day trading penny stocks forget about this. The key is to research the stock you’ll be specializing in. Pay attention to its fundamentals. It must be stable enough so that it can sustain your trading. Avoid companies that are mere flashes in the pan-companies that are hyped up now and then disappear in a few months. You need to specialize in a company that’s actually in operation and actually has activities that can be the basis for stock price movements. You don’t want a company that is stagnant, dormant, or flat on its back.
Volume matters – be smart!
In addition to picking a company that has decent fundamentals, when day trading penny stocks, you need to pick a company whose shares have a high enough volume in daily trading. Remember, day trading penny stocksis all about buying and selling a company’s stock repeatedly within a very short period of time. You are, after all, trying to make money from the short term differences in the company’s stock. This is the difference between making decent money and being stuck with stock you can’t unload for a long time. It’s all about volume. There has to be enough trading volume so that it will be fairly easy for you to get in and out of your positions. Make no mistake about it, day trading penny stocks can be quite exciting but you need to deal with a stock that has enough volume so you can get in and out. Most p
enny stocks don’t have enough trading volume. There aren’t enough ready buyers or sellers so people can’t go about day trading these stocks effectively.
Volatility is your friend
To many people who are unfamiliar with day trading penny stocks or who are unclear about the concept, the volatility of these penny stocks simply terrorize them. They panic at the steep drops. This is understandable, but you need to see the big picture. When you are day trading penny stocks, you aren’t investing like Warren Buffet. You aren’t buying a stock based on fundamentals and hold on for years so you can unload for a spectacular gain. Instead, you buy for very short term profits. In short, when day trading penny stocks, you are looking for differences between the low point you bought and the higher point the stock hits. For this to happen, you can’t pick stocks that have low volatility. Instead, you need stocks that spike up and down. The key to day trading penny stocks is to make money in between these spikes. You make money with each spike.
So what is the secret to day trading penny stocks? It is actually quite simple: you make money when you buy the stock. That’s right, when the stock spikes downwards, you scoop up and wait
until a recovery or decent recovery and you unload and wait for the spike up or downward to plot your next move. By getting in at just the right time, you lock in at decent returns. Since this happens on a daily basis, you can make quite a bit of money from these small but decent returns. Actually, day trading penny stocks isn’t much different from day trading regular stocks. The only difference is the dollar value and possibly volume.