If you want to be successful in investing then you need to live by a set of rules. Penny stock investing is no different. In fact, because of the volatility of penny stocks it is probably even more important to trade by some very specific rules. With that in mind here are a few tips to help in your penny stock investing.
Tip #1
Always trade stocks with good volume. This is especially true in the penny stock trading world. Since most penny stock traders trade thousands of shares it is important to trade in stocks that have a high enough daily volume to be able to absorb you moving in or out of a position. In thinly traded stocks you could move the stock price by up to 5% against you if you had to get out. Low volume will work against you.
Tip #2
Don’t follow too many penny stocks. One of the mistakes of traders is that their attention is too divided. You do not need to follow 50 or 100 or 200 stocks to be successful in penny stock investing. In fact I would say failure is proportionate to the amount of stocks you are trying to follow. I would recommend putting together a watch list of 10 or 20 companies and look at their charts every day. If you try to track too many stocks you will miss big moves when they occur. Following a smaller watch list allows you to get to know your stocks. You are aware of earnings dates and some fundamentals. You begin to get a feel for its trading pattern.
Tip #3
Don’t be too diversified. The point of trading penny stocks is to be able to take advantage of the large swings. If you are too diversified (i.e. holding too many positions) you will water down your profit potential. I would recommend not holding more than 3 or 4 positions. Does this create more risk? Of course it does. But you need to manage risk by your trading rules and not through diversification.
Tip #4
Have specific trading rules in place. As I mentioned earlier no one will succeed in penny stock investing apart from a disciplined set of trading rules. Before you begin trading you need to have a defined set of entry strategies and exit strategies. then you must stick to them like glue. These rules are your lifeline in trading. Without them you will go under.
Posted in Penny Stock Investing, Penny Stock Strategy, Penny Stock Trading Rules.
Tagged with Penny Stock Investing, Penny Stock Traders, Penny Stock Trading, penny stocks, Trade Stocks.
The question arises all the time as to whether penny stock investments are safe. Before answering that question let me clarify that all investing has inherent risk. Yes, you risk losing money whenever you invest. This is true whether you invest in bonds, mutual funds, commodities, blue chip stocks or penny stocks. So the answer to the question is that no for of investing is 100% safe.
So where do penny stock investments fall in the order of safety? No one is trying to be deceptive. Penny stock investments can be risky. However, if you are going to trade in penny stocks then you need to realize that they are not long term holds. I would never recommend buying a penny stock and holding it for five years. The fundamentals of these stocks are so poor that it is difficult to even make an informed decision about the prospects of the company. I would have no idea where they would be in five years. But I may be able to predict their near term trading pattern over the next two weeks.
Penny stock investments are really not investments at all; they are trading vehicles. The point in trade penny stocks is to move in and out of them to take advantage of the large swings that they often present us with.
If you put in place a very disciplined and strict trading program you can limit much of the risk involved in penny stock trading. If you narrow down the stocks that you will trade to those that provide you the best liquidity and near term visibility of price movement you will go a long way to limiting your risk. Trade penny stocks who have had recent good news or who have already reported earnings. This way there is less of a likelihood of a downside surprise.
Once you have narrowed your trading list down then you need to trade on the basis of some very defined entry strategies and exit strategies. Know why you will get into a stock and why you will get out. I do not recommend that you ever make those decisions based on fundamental analysis. You are a trader and should make your trading decisions on the basis of technical analysis.
Determine what triggers will get you into a position and which trading signals will get you out. The same principles of technical analysis apply to all stocks regardless of their price. Become a student of technical analysis and apply what you learn to your trading of penny stock investments.
Posted in Uncategorized.
Tagged with entry strategies, exit strategies, fundamental analysis, Inherent Risk, Penny Stock Investments, Penny Stock Trading, technical analysis, Trade Penny Stocks.
The goal of stock trading is to make money. Unfortunately, the way it is practiced by many you would think just the opposite. If your goal is to make money then you need to give consideration to penny stock trading for the mere fact that penny stock gains can be staggering.
It is humorous that many in the investment community consider themselves successful of they return in the neighborhood of 10% on their account each year. Why is this humorous? Because a 10% gain is a good day for some penny stocks, not a year. Penny stock gains can easily run in the neighborhood of 10%, 20% or even 50% in a day. A five percent move is just an average run of the mill move. Why is this the case? It is because penny stocks have such a low cost per share.
Penny stocks usually refer to any stock trading under $5 per share. Since they are priced so low every move in the stock is magnified. A 20 cent move in a $20 stock is only a 1% move, however, the same move in a $2 stock is a 10% move. Ten thousand dollars invested in the $20 stock would leave you with $10,100 where the same money invested in the penny stock would give you $11,000. If you think that this is a large move, think again. In the world of penny stock trading, penny stock gains of 10% are small. Let’s take a look at a couple of examples.
Dendreon (DNDN) is a biotech stock. On March 9, 2009 DNDN was trading at $2.64. On April 27, 2009 it closed the day at $21.55. That is more than a 900% return in 1 1/2 months. This is the power of penny stock gains. Today the stock trades over $33 per share. This is what can happen when there is great news on a biotech penny stock.
Human Genome Sciences (HGSI) is also a biotech stock. On March 11, 2009 it closed at .48 cents per share. On July 28, 2009 it closed at $14.63. Today it closed at more than $30. That is more than a 6300% return in less than one year. To give you better understanding $10,000 invested in HGSI nearly one year ago would have produced $625,000 today. So when I say that penny stock gains can be staggering, this should give credence to it. You may want to consider doing some penny stock trading of your own.
Posted in Penny Stock Trading.
Tagged with penny stock gains, Penny Stock Trading, penny stocks, stock gains, Stock Trades.
