I had been conditioned to avoid penny stocks trading. Up until a few years ago I had never traded a single one. Then I began to evaluate a few of them and came to the conclusion that I was missing out on great potential rewards.

Even prior to the market crash I came to believe that it was safer to trade than it was to “invest.” By “investing” I mean the universally adopted strategy of buy and hold. After the market crash, my conclusion was confirmed. While I watched friends, family and co-workers go through panic fits as up to 40% – 50% of their entire accounts were wiped out I sat around stress free with a smile on my face. Due to moving in and out of the market it was very easy for me to liquidate everything and move to cash. During the market drop my account value actually rose.

You see the standard buy and hold strategy is quite happy if their overall account grows at a rate of 10% per year. If your account was growing at 10% compound annual growth rate while the market corrected you would have lost over five years worth of growth. If your account managed less than 10% then you lost even more.

As I took a closer look at trading penny stocks I noticed that they make much larger percentage moves than the average stock. This was quite encouraging. Also because the price per share was dramatically lower than the average stock, my breakeven point on a trade required less of a move.

Let’s look at a comparison chart to see the difference it makes.

As you can see from the chart above the profit possibilities in penny stock trading are enormous. Assuming the same amount of money (in this case $2000), a $2 stock will yield about $480 in profit (after commission costs) on only a 50 cent move. The same money invested in a $20 stock would yield only $30. A $200 stock would leave you with a loss of $15. When I began to understand this concept I began to slowly see the power of penny stock trading.

Welcome to what I believe is the world’s best business: Trading Penny Stocks. I know that may sound like a bold statement but please allow me to explain. Trading penny stocks does not have to involve working on the weekends. Your work day can be done by the time the stock market closes if not before. You can work from home or anywhere else that you choose to as long as there is an internet connection. You can set your own vacation time. It is a skill that you can teach your children. The financial rewards can be great. But you ask, “Isn’t trading a stressful job?” That is a good question. It can be for many. But when you follow a disciplined trading system such as will be outlined in the following posts then it ceases to be stressful. In fact, it becomes enjoyable.

Let’s face it the economy is not too good. If you are like many people you have tried all sorts of things to make money throughout the years. I have done the same. I have joined MLM network companies but found I didn’t like to pester family, friends or strangers about the latest, greatest, nutritional product. I tried my hand at internet marketing and even made a little money at it. The emphasis should be on the word little.

I thought to myself that I should stick to what I know. I have a good knowledge of trading and had at times been successful with it in my past. However, a few horrible trades had done damage to my account and had escalated my debt level (it is a long story and I will spare you the details). I had begun trading again in my 401K and was having success with it.

As I evaluated my trading failures in the past, I discovered that every one of them violated a disciplined trading system in at least one or more than one way. I believe I could be successful if only I could be disciplined. So I set out to create a set of trading rules for me to abide by. The result of that is ultimately the posts that you will be reading.

Continue Reading:  The Financial Rewards of Penny Stock Trading