Posts Tagged ‘Trade Penny Stocks’
Are Penny Stock Investments Safe?
Written by troy on Wednesday, March 03, 2010 | No Comments
Categories: Uncategorized Tags: entry strategies, exit strategies, fundamental analysis, Penny Stock Investments, Penny Stock Trading, technical analysis, Trade Penny Stocks
The question arises all the time as to whether penny stock investments are safe. Before answering that question let me clarify that all investing has inherent risk. Yes, you risk losing money whenever you invest. This is true whether you invest in bonds, mutual funds, commodities, blue chip stocks or penny stocks. So the answer to the question is that no for of investing is 100% safe.
So where do penny stock investments fall in the order of safety? No one is trying to be deceptive. Penny stock investments can be risky. However, if you are going to trade in penny stocks then you need to realize that they are not long term holds. I would never recommend buying a penny stock and holding it for five years. The fundamentals of these stocks are so poor that it is difficult to even make an informed decision about the prospects of the company. I would have no idea where they would be in five years. But I may be able to predict their near term trading pattern over the next two weeks.
Penny stock investments are really not investments at all; they are trading vehicles. The point in trade penny stocks is to move in and out of them to take advantage of the large swings that they often present us with.
If you put in place a very disciplined and strict trading program you can limit much of the risk involved in penny stock trading. If you narrow down the stocks that you will trade to those that provide you the best liquidity and near term visibility of price movement you will go a long way to limiting your risk. Trade penny stocks who have had recent good news or who have already reported earnings. This way there is less of a likelihood of a downside surprise.
Once you have narrowed your trading list down then you need to trade on the basis of some very defined entry strategies and exit strategies. Know why you will get into a stock and why you will get out. I do not recommend that you ever make those decisions based on fundamental analysis. You are a trader and should make your trading decisions on the basis of technical analysis.
Determine what triggers will get you into a position and which trading signals will get you out. The same principles of technical analysis apply to all stocks regardless of their price. Become a student of technical analysis and apply what you learn to your trading of penny stock investments.
Keys to Becoming an Effective Penny Stock Trader
Written by troy on Tuesday, March 02, 2010 | No Comments
Categories: Penny Stock Trading Tags: Cheap Stock, Penny Stock Traders, Penny Stock Trading, Stock Trader, Trade Penny Stocks
Penny stock trading can be an incredibly lucrative form of trading. However, being a penny stock trader is not as simple as finding a cheap stock and making a trade. If you want to achieve good returns on your account then there are a number of keys to keep in mind.
Trade penny stocks with good volume. There are penny stocks that do not trade many shares on a daily basis. This can cause a problem for the active trader. It makes it more difficult to get into a position or to get out of a position without effecting the price. Since penny stocks are cheaper than the average stock penny stock traders have a tendency to buy more shares. If you are holding 5000 shares of a company that only trades 15,000 shares on an average day, you will move the market against you if you need to exit your position. Try to trade stocks with at least 500,000 average volume. The higher the volume the better.
Stay away from scheduled news events. More often than not the news for penny stocks is not too great. Although there are mammoth gains to be had if you guess in the right direction there are tremendous losses to be incurred if you are wrong. As a result, I would not hold a position going into their earnings announcement. The risk is too great. There are many other opportunities to take advantage of during the time between earnings announcements. The only exception to this may be in the biotech arena. If a penny stock company is waiting on drug approval you may want to take a chance since this can result in an overnight double or more. I have seen stocks open the next day up 700% on such announcements. However, keep in mind that if the announcement is not favorable then the stock is likely to get cut in half or worse.
Another key for the penny stock trader is to buy stocks that have pulled back after good news. Often you are not in a penny stock at the time it makes a big move. But if you will wait you will often get a second chance. If there was a big move then many traders will begin to take profits. This will push the stock lower. As it continues to fall others will want to at least get something out of the big move so they will sell as well. Many times this will bring the stock very near to wear it began the move in the first place. This provides you with a second chance to enter a trade for the next leg up.
If you can put these three keys to work in your daily trading it will go a long way toward making you a more effective penny stock trader.