Trading Penny Stocks Online

Trading Penny Stocks Online

So you are considering buying penny stocks online. Before you begin trading there are a few things that you should know. Many penny stocks are ideal for trading but all penny stocks are not equal so do not just run in and start buying the first penny stock that you see. You are going to want to be a little choosey when trading penny stocks.

If you are going to actively trade penny stock then you should only trade stocks that meet certain criteria. I set certain standards for myself that I will tell you about but you will have to determine what standards you want to choose for yourself.

The first criteria that I focus on before trading penny stocks online is the price of the penny stock itself. As you probably know a penny stock is considered to be any stock that is trading at less than $5 per share. However, I am a bit more picky than that. Some people think that penny stocks are those companies that are trading at less than a penny. Officially they are penny stocks but are more commonly referred to as sub-penny stocks. I never touch sub-penny stock. I even have a hard time considering these companies viable. I recommend that you stay away from them but you will need to make your own decision on that front. In fact, I never trade penny stock below 50 cents and rarely trade stocks that are below $1. It is more of a comfort thing for me. Actually the sweet spot that I tend to trade in is from $1 – $4. You may be different. But this is what I find works for me. I know many people are successful trading 9 cent penny stocks but that is not for me.

A second criteria that I focus on in my penny stock trading is volume. I do not want to trade thinly traded stocks that may be able to be manipulated. Once again you will have to determine what volume level that you are comfortable with but I prefer to trade stocks that trade at least one million shares on average each and every day. I use the 3 month trading average to gather this figure. Although one million shares a day is what I prefer, I will trade penny stocks online that have lower volumes. The lowest that I will go is an average of 300,000 shares per day. There seems to be to wide of a spread in penny stocks that trade less than that. I do not want to trade penny stocks with large spreads. I prefer my spreads not to be any wider than 2 cents. I find that when I stick to companies that trade more than 300,000 shares per day on average that it is not a problem in finding tighter spreads.

I do not use too much in the way of fundamental analysis in making my trading decisions. I will look at debt levels but I do not care about earnings or revenue for that matter. I am not investing in the penny stock long term. I am looking for a short term trading profit. I base most, if not all, of my trading decisions on technical analysis.

I basically use three different trading strategies in my trading. I trade penny stocks that 1) are breaking above resistance, 2) have broken above resistance and have now pulled back to a significant moving average and 3) have had large upside moves and are now poised to pull back. The first two strategies are traded on the long side and the last strategy is a short strategy.

I will cover each strategy in detail in the coming days.