How to Trade Penny Stocks

Penny stock trading is usually day trading stocks that are priced under five dollars a share. This is not value investing or long-term investing. This is riding the wave of a hot stock for a short term, quick profit. The better you are “riding” the wave, the more successful you’ll be at day trading penny stocks. Here are three tips to get you started trading penny stocks.

Risk Respect

This is not about getting rich on one big bet. Keep your profits, and also your losses, small. You do this with risk respect. Most penny stocks aren’t worth the paper they’re printed on. They’re thinly traded and hugely volatile. What does this mean for you? It means the tides can shift quickly if you’re not keeping a close eye on the market, the stock, and therefore your money. Don’t be afraid to take those small profits if you feel the tides are shifting and cut those losses small. You might not be able to fight risk, but you can respect it.

Keep a Trading Journal

My favorite piece of advice I ever received was, you’re going to make a lot of mistakes day trading penny stocks, just don’t make the same one twice. The best way to do this, is to remind yourself of your wins and your losses. A great way is to diary your profits and losses is by keeping a penny stock trading journal. Typically, the best penny stock traders are methodical. They have a plan, they stick to it, they respect risk, and most importantly, they learn from their mistakes. A journal is a great way to keep yourself on track and your head in the game. Don’t dwell on the losses but make sure you learn from them.

No Pollyannas Allowed

Penny stock trading is not built for the eternal optimist. Ninety-nine percent of all penny stocks will fail. In order to be successful at day trading penny stocks you have to stop believing everything you read on the internet about what the next “big” thing is. Every single one of the companies you invest in might fail, but that doesn’t mean you can make a profit on them while they’re doing it. At the same time, don’t’ be afraid to cut those losses when you see a stock tanking. Penny stock trading is not about finding that diamond in the rough and riding it out. That strategy will most likely have you under water before you know what hit you.

Day trading penny stocks may not be for everyone, but if you can keep a level head and manage your risk you can find success in trading penny stocks. What do you wish someone would have told you before you invested in that very first penny stock.

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