Day Trading Penny Stocks
In previous articles we discussed various day trading strategies and how to make a living day trading. In this article we will focus on various techniques for day trading penny stocks. Penny stocks are very different from other stocks in that there is a greater risk of being the victim of fraud.
Penny stocks are usually stocks under 5.00 but in reality you can find much higher priced ones. Day traders think of penny stocks as very cheap. These stocks are usually very inexpensive. You can find them as low as a fraction of a penny. The real name for penny stocks are Over The Counter Bulletin Board Stocks (OTCBB) or Pink Sheets. They mainly come from new start up companies that are trying to “make it” or invent a product. They are extremely high risk as their is weak regulation in this market and there are many scams trying to take your money. It seems most penny stocks are highly manipulated.
When day trading penny stocks, the last thing you want to do is purchase late on some e-mail burst claiming the stock is the next microsoft. You also want to avoid unscrupulous penny stock forums where the board is manipulated. We attempt to run an honest forum here and you will notice that it is much quieter than other forums, where users are allowed to have many nick names and the boards are invested in the pumping. We’re not here to trash other sites but if your interested search out the SEC and specific forums. These are just 2 simple ways of performing pump and dumps. When day trading pump and dumps the stock price is artificially inflated with volume from false news articles or paid promotions. These are very dangerous penny stocks to day trade but if you can find out who is pumping what and get in early you can make a profit. Just be very careful and not greedy.
A safer way to day trade penny stocks is to look for good companies to invest in. Very similar to Nasdaq stocks, you want to ensure the company has good financial stability, size and a history of being honest. All of this can be discovered by reading the filings. Pink sheets do not have to file, so be even more careful with them. When you find a company you like in a sector you like, make sure you chart the stock and find a price you want to purchase the stock at. Then wait for the stock to hit your price. You can often day trade the cycles of a penny stock for profit without having much hype or news on the stock.
Another great method for day trading penny stocks is to keep your ear to the ground and listen for the latest rumors. You will often begin to hear rumors about various companies in different sectors. If a certain rumor is in a sector that is hot or is soon to be hot, this could be a great buy. Just remember that the rumor could be false and that is why you are day trading the penny stocks and not investing in the penny stocks.
I can’t emphasize enough how dangerous these stocks are. If you get involved in them you will be taken for a loss on some stocks, you will also hit huge gains on some stocks as well. The trick is to win more than you lose and don’t be greedy. Take your profit and don’t look back, it doesn’t matter if the stock goes another 100%. Plan your trade, take your profit and be happy.
Good luck day trading penny stocks!
