There are many who wonder whether they can make money trading penny stocks. The answer is a resounding yes, however, there are a number of things to keep in mind before beginning your penny stock adventure.

Too many believe that they can enter the penny stock trading game and be an immediate success. I hate to break the news to you but nothing could be further from the truth. Stock trading is a skill that needs to be learned. Most often it takes months, if not years to master. Below I will discuss a number of factors that you must keep in mind if you want to experience success in the penny stock trading game.

The biggest factor that new traders struggle with is the mental side of trading. New traders (and many that have been trading for quite awhile) struggle with taking profits too early and taking losses too late. This will doom your efforts to make money trading penny stocks. If you are going to be successful trading penny stocks then you need to have developed a trading plan. Once you have established a penny stock trading plan then you need to stick to the plan. Unsuccessful traders fail to do this. In the heat of the battle their emotions take over and they make irrational decisions, decisions that cost them money. The intent of this article is not to give you a trading plan (you can find pointers on that elsewhere on the site) but merely to point out that you need to have a trading plan before moving forward. You will not make money trading penny stocks without one.

A second thing that you need to keep in mind is that you are trading in penny stocks and not investing in penny stocks. Those that invest in penny stocks are hoping that a single stock that they have put money in will increase in value in a tremendous way. When you are trading penny stocks you are not placing your hopes on a single stock or even a few stocks. You are looking for companies whose current stock price provides a trading opportunity. You could care less if the company itself had any prospect of making money. In fact, if you are looking to short penny stocks then you are looking for companies who don’t have a good business outlook. If you invest, the time frame that you are willing to hold a particular stock is much longer that if you are trading. When you trade you are looking for a quick profit and you don’t want to hang on to the stock for months. This is an important distinction to make.

If you want to make money trading penny stocks, then a third thing that you need to focus on is technical indicators and price action. Since you are not investing, the fundamental prospects of the company are not that important. However, the current price action is very important. Some choose to use a wide variety of indicators and look for divergences between two or more indicators to let them know when they should enter a trade. However, price action is the most important factor when trying to make money trading penny stocks. Oversold stocks tend to bounce back. Overextended stocks tend to pull back. Stocks that are in motion tend to stay in motion. If the stock that you are following breaks through a significant moving average it is most likely to continue in the same direction for the near term. Price action is king when engaging in penny stock trading.

With the right trading plan, discipline to adhere to your trading plan, a correct understanding of your trading time frame and a good handle on price action you can make money trading penny stocks. Venture into the trading game slowly and learn as you go.