Penny Stock Investing
How To Trade Penny Stocks Successfully
Written by troy on Saturday, February 26, 2011 | No Comments
Categories: Penny Stock Advice, Penny Stock Articles, Penny Stock Investing, Penny Stock Strategy
Before beginning to trade penny stocks you need to spend time educating yourself how to trade penny stock successfully. After all, you do not invest your money simply for the experience. You invest to make money. There are things that you will need to learn so that you end up making thousands of dollars rather than losing thousands of dollars.
Pick The Right Penny Stock Broker
Before beginning you need to choose the right penny stock broker. Now this is fairly simple to do. There are really only two things that you need to keep in mind. The first is that you do not want to use a full service broker. The cost of the commissions will eat into your profit too much. The only reason to ever choose a full service broker is if you plan on relying on the stock picks of a broker. Most full service brokerages do not want their financial consultants suggesting that their clients buy penny stocks. So for all intents they are not the right choice for a penny stock broker.
The second thing that you will want to keep in mind is choosing the right broker if you plan on shorting penny stocks. There are certain brokerages that are better at obtaining penny stock shares to short. A few of them would be Think or Swim, Interactive Brokers, Sago Trading and maybe Zecco. If you do not plan on shorting penny stocks then any discount brokerage where you commissions are $8 or less would be a good choice.
Practice Diversification at the Start of Trading
I am not a big fan of diversification. I prefer to manage only a few stock picks at a time and watch them closely. With the being said, I would recommend that the beginning penny stock trader practice diversification. Until you have learned to trade and have honed your craft you will not want to put large chunks of your trading capital on an individual trade. Until you have learned to control the emotions of fear and greed you are putting yourself at risk. I would recommend never committing more than 10% of your trading capital to any one trade when you are new to trading. Once you are more comfortable with what you are doing and have shown the ability to cut losers before they become a drag on your account you can consider increasing the amount that you commit to any one trade.
Do Your Own Penny Stock Research
What I really mean here is to not only do your own penny stock research but also to make your own trading decisions. Do not lean on stock picking services or penny stock newsletters. You have the ability to make your own trading decisions. I make most of my trading decisions based on technical factors. I perform fundamental analysis only to assure myself that I am not stepping into a company that is going to go belly up anytime soon. I am usually not interested in the long term viability of a company. I am a penny stock trader and have a short time horizon. In fact, if you are using a strategy that shorts penny stocks then you might want to attempt to find companies that do have fundamental problems and short them whenever they get a spike in price. Penny stocks traders such as Tim Sykes has made a nice living doing this for years.
Adopt a Penny Stock Trading Strategy
Most successful traders use a particular strategy that they feel comfortable with. There are some traders that “trade from the gut” but most only lose money that way. If you pressed those that claim to “trade from the gut” you will find that somewhere in their mind is a set of criteria that they are looking for. That, in essence, is their system. You need to know what will cause you to enter a trade. Is it a technical indicator, a breakout, a divergence between indicators, a result of your penny stock research, etc. How much profit are you looking for on each trade? Where will you exit the stock if it moves against you? Will you enter full positions or partial positions? How much will you commit to each individual trade? There are many questions to answer. Sit down before beginning and lay out a specific attack plan and then execute it religiously.
Strategy #1 for Consistent Profits In Penny Stock Investing
Written by troy on Sunday, February 13, 2011 | No Comments
Categories: Penny Stock Articles, Penny Stock Investing
I had promised that I would give brief write ups about the three penny stock strategies that I take that help provide consistent profits in my penny stock investing. So without further adieu let’s dig right in.
The first penny stock trading strategy that I use is trading penny stocks that are breaking out. Now I use that term loosely to refer to four different types of breakout. I take long positions on penny stocks that are breaking out above a significant moving average, breaking above a trendline, breaking through an area of resistance and setting a new two week high.
I prefer to buy penny stocks that meet the above criteria and that are also doing so on larger than average volume. I find that there is no better way than to look at a few examples to show you what I am looking for. In this article I will specifically cover buying penny stocks that are breaking above a significant moving average. The others will be dealt with in the coming days.
When I refer to significant moving average I am talking about the standard mid range moving averages. The ones that I focus on are the 20 day, 40 day and 50 day moving averages. I do not do anything with the 100 or 200 day moving average because the time frame is a little too long for my trading time frame. But if it suits yours then, by all means, use them. I use exponential moving averages but if you want to use simple moving averages or weighted moving averages then that would be fine. In the examples below, I will use the 20 day EMA.
The chart below is a chart of Level Three Communications (LVLT). I have centered in on the last few months. You will notice that on December 22, 2010 it broke above the 20 day EMA (red line) but it failed to hold above the line. Then on December 30, 2010, it broke above one more time. This time it held. If you had bought there at around 98 cents per share you could have conceivable achieved a 20 percent return in a matter of days depending on how long you stayed in the trade.
Here is another example of Synovus Financial (SNV). On December 1, 2010 the penny stock closed at $2.1. One month later it increased in share value to $2.90 on the first trading day in January 2011. The is a return of more than 40%. You see you don’t need to make penny stock investing a difficult process. Take what the market is giving you. Stop forcing trades or simply taking a trade because your next door neighbor had a hot stock tip or because you had heart from some penny stock newsletter that this company is the next Microsoft and is set to make you 4000% in the next 6 months.
Below is one more example for Fuel Cell (FCEL). This shows you how to look at volume to determine if it is a trade that you want to take. I would not have taken a trade on FCEL unless it was accompanied by an increase in volume. The stock had been trading right around the 20 day moving average. One day it would be above the moving average and a few days later it would move below. There was nothing unusual about the trading volume. It was merely in a trading range and none of the crossovers above the moving average would have carried any significance. However, on November 4, 2010, it closed above the moving average on about 3 times normal average volume. This indicated a possible trade. On the 4th, it closed at $1.26. Two days later it closed at $1.58. That represented about a 25% gain in only two days. However, the stock did pull back. Once again it broke above the moving average on December 6th and added more than $1 to its share price at one point on the first trading day in 2011. That represented around more than a 70% move.
If you make your triggers to enter penny stock trades a little more simple you will see your penny stock investing profits begin to skyrocket.