Penny Stock Trading

I want you to take the next little while to dream. What amount of money do you need to either call it quits in your current job or to provide you with enough so that you don’t have to worry about whether or not you lost your job in the current difficult economic environment. I have pegged that number for myself at $2,000,000. A 10% yearly rate of return would provide me with a $200,000 income. I live fairly frugally so I could live on much less than this to be honest. But we are dreaming, right?

That is my number; what is yours? Is your number less or is it more? I have given you a few numbers below that show you how many trades it would take for you to grow $25,000 into $1,000,000.

Well, let’s say you number is $1,000,000 and let’s assume that you have an account of $25,000. What will it take to turn that $25,000 into $1,000,000.

You see when you break it down like this it doesn’t seem all that impossible. You need to be able to double your account six times in order to reach $1.2 million. Penny stocks (as we have seen) can double with great regularity. If you are able to get a 50% return on your account 10 different times you would have $1.4 million. Are you beginning to see the possibilities? How about 20%? It would take 21 different 20% moves on your entire account to give you $1.1 million. Are you curious what 10% would do? It takes 37 10% moves to break $1 million. If you were able to grow your account by 10% per month it would take a little over three years. I recognize that this becomes more difficult the larger your account gets but it is still possible.

As I said, penny stocks make these types of moves on a consistent basis. I purchased a couple of stocks that I have been following recently. I bought BCON at .78 and ESLR at $2.17. On July 2^nd, 2009 they both made a move (I bought just two days before). BCON went as high as $1.05 and ESLR hit $2.47. Now maybe that doesn’t sound like much but BCON represented more than a 30% move and ESLR made nearly a 15% move. This is the possibility that is presented to you. And by the way these moves occurred on a day when the market went down by more than 200 points.

Well, if you are ready to dig into how to make this become a reality then grab a drink, sit back in your favorite chair, turn off the television and focus on what I am about to reveal. I am going to give you my philosophy of trading penny stocks. It has served me well and it is my hope that it will treat you just as kindly.

Despite the enormous returns of a few of the stocks shown much of what we will be looking for are stocks that return 10%, 20%, 30%, 40%, etc returns. To do this we will be looking for stocks that have a tendency of swinging back and forth. They may never truly go anywhere but they will make the types of swings that we are looking for. Take for example the stock found below.

JA Solar made six upward swings of 10% or more from March 2009 through July 2009. Below is a chart that shows the type of profit that could have been had.

Let’s assume however that you could only get 70% of each run. What could you have made on JASO during this time frame by trading these six runs? If you had traded with 1000 shares each time you would have made a profit of $6608. Not too bad. Once again, JASO is not the exception to the rule. There are plenty of stocks just like it.