Author's Archive
Shorting Penny Stocks: Is It A Good Idea?
Written by troy on Thursday, December 02, 2010 | No Comments
Categories: Penny Stock Advice, Penny Stock Articles, Penny Stock Strategy
I am amazed at how many different traders that I have heard are shorting penny stocks. I understand the reasoning behind the practice but I find it to be an incredibly dangerous penny stock trading strategy. Let me explain.
As I mentioned I understand why traders want to short penny stocks. Many penny stocks are not necessarily the picture of a well run company or a financially stable company. So it makes perfect sense that you would want to short companies who meet this criteria. However, my concern is that you have quite a limited downside to the stock and a large possible upside.
When I enter a trade I would like my upside to be greater than my downside. If you are shorting a $3 penny stock, it can only fall so far. However, a crazy piece of news or rumor or buyout or partnership could send the stock on an explosive upward run. If there are many traders who are short then this exacerbates the problem as all of them are attempting to buy and get out at the same time adding to the explosive move to the upside.
In my opinion shorting penny stocks is not a good idea. There is too much risk. If you disagree with me that is OK but you will run into a few problems if you want to short penny stocks. Many brokerage companies will not provides shares for shorting on companies that are trading at less than $5. You might have to switch your penny stock broker in order to be able to come up with shares to short.
The only time that I would consider shorting a penny stock is after it has made a large run to the upside. If this has happened then there is a great chance that the stock will pull back soon. Most penny stocks stay penny stocks for quite awhile. I would especially analyze what made it increase in share value. If it was news that does not seem to have lasting value then I would have no problem shorting the stock.
So if one of your main trading strategies is going consist of shorting penny stocks then you need to spend time in research and find the best penny stock broker to allow you to execute your trading strategy.
The Right Penny Stock Strategy Can Make Or Break Your Trading
Written by troy on Thursday, December 02, 2010 | No Comments
Categories: Penny Stock Strategy, Penny Stock Trading Rules
Penny stock trading is no different than other stock trading. Every trader needs a strategy that they follow in order to be successful. Stock trading without a plan is a sure fire way to experience failure. The same is true of penny stock trading. The right penny stock strategy can make or break your trading.
The first part of any penny stock strategy needs to be money management. How much money are you going to commit to any particular trade? Will you establish a full position when you enter a trade or will you only establish a partial position? These are important questions to answer up front because it will determine what your next move is. If you are entering a full position each time you enter a trade you will immediately have to set where you are going to exit the stock should it move against you. If you are only entering a partial position you may be expecting the stop to drop further and you will have to know when you will enter the rest of your position.
You will need to have a strategy for entering your penny stock trade. What trigger will cause you to enter a trade? Every trader is different. You need to determine what is most familiar and comfortable for you. If you are a trader you are most likely not entering stock trades on the basis of fundamentals alone. Fundamentals are primarily for investors who are more long term. I am not a long term trader. I would be considered a swing trader. Now you may use fundamentals to narrow down your potential penny stock trading list but you are most likely not using the fundamental of the company to trigger your trade.
Most traders trade on the basis of technical analysis. Which technical analysis indicator you use is really a matter of personal preference. I know that this may not be exactly what you are looking for but I am of the opinion that virtually any technical indicator will work. If you are looking for the magic indicator or the one trigger that will bring your thousands then you have come to the wrong place. Any indicator will do. The magic is in your strategy or trading rules and whether or not your have the discipline to execute your strategy and follow your rules.
Discipline is the number one skill that will determine if you are successful or if you fail. You can be successful. I have no doubt about that if you can control your emotions. You will need to control the two emotions of fear and greed is you are going to be able to execute your penny stock strategy.