If you want to be successful in investing then you need to live by a set of rules. Penny stock investing is no different. In fact, because of the volatility of penny stocks it is probably even more important to trade by some very specific rules. With that in mind here are a few penny stock investing tips to help in your stock trading.

Tip #1

Always trade stocks with good volume. This is especially true in the penny stock trading world. Since most penny stock traders trade thousands of shares it is important to trade in stocks that have a high enough daily volume to be able to absorb you moving in or out of a position. In thinly traded stocks you could move the stock price by up to 5% against you if you had to get out. Low volume will work against you.

Tip #2

Don’t follow too many penny stocks. One of the mistakes of traders is that their attention is too divided. You do not need to follow 50 or 100 or 200 stocks to be successful in penny stock investing. In fact I would say failure is proportionate to the amount of stocks you are trying to follow. I would recommend putting together a watch list of 10 or 20 companies and look at their charts every day. If you try to track too many stocks you will miss big moves when they occur. Following a smaller watch list allows you to get to know your stocks. You are aware of earnings dates and some fundamentals. You begin to get a feel for its trading pattern.

Tip #3

Don’t be too diversified. The point of trading penny stocks is to be able to take advantage of the large swings. If you are too diversified (i.e. holding too many positions) you will water down your profit potential. I would recommend not holding more than 3 or 4 positions. Does this create more risk? Of course it does. But you need to manage risk by your trading rules and not through diversification.

Tip #4

Have specific trading rules in place. As I mentioned earlier no one will succeed in penny stock investing apart from a disciplined set of trading rules. Before you begin trading you need to have a defined set of entry strategies and exit strategies. then you must stick to them like glue. These rules are your lifeline in trading. Without them you will go under.