Can You Make Money Day Trading Penny Stocks?

This is a question that I get asked all the time… Can you really make money trading Day Trading Penny Stocks? The answer is yes but you do have to put in time every day like any other business to really break the bank. Penny Stocks can be one of the easiest ways to make money trading penny stocks since there are so many scams and manipulation surrounding the volatile world of penny stocks. I have a few basic tips to help you make money Day Trading Penny Stocks.

Before I begin lets talk about what penny stocks are. Most people think it is a stock that sells for pennies, when actually in America it is considered to be any stock selling for less than $5.00. The term “penny stock” generally refers to low-priced (below $5), speculative securities of very small companies. While penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board or in the Pink Sheets, they may also trade on securities exchanges, including foreign securities exchanges. In addition, penny stocks include the securities of certain private companies with no active trading market.

Before a broker-dealer can sell a penny stock, SEC rules require the firm to first approve the customer for the transaction and receive from the customer a written agreement to the transaction. The firm must furnish the customer a document describing the risks of investing in penny stocks. The firm must tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade. Finally, the firm must send monthly account statements showing the market value of each penny stock held in the customer’s account.

Penny stocks may trade infrequently, which means that it may be difficult to sell penny stock shares once you own them. Because it may be difficult to find quotations for certain penny stocks, they may be impossible to accurately price. Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.

So now for the Rules.
1. Do not trade low volume penny stocks.

What do I mean by this? This means if you see volume bars or trades only once every 20 minutes or so then do not enter. The reason is because you will have a hard time getting in and out of the stock due to demand. You can hold a stock if you think news is going to come out that would be beneficial to the stock and increase demand, but do not day trade penny stocks that have low volume. It will only cost you money. The spread can also be 10% or greater on penny stocks with little or no volume. You should look at the tape and make sure there are constant orders coming in and getting filled. This will insure that you have the best chance of making money when you go to sell the stock, or at least be able to cut your losses quickly.

2. Do not believe the pumpers (stock promoters.)

A stock promoter is a person who encourages others to purchase shares in publicly traded companies. The shares are often for penny stocks, which have low per-share value and are traded in low volumes over the counter or on small exchanges. The objective of a stock promoter is to increase investor awareness, trading volume, and share price. Stock promoters are often associated with pump and dump scams, speculation, and other unethical or illegal activities. Do not believe every spam email you read from a stock promoter. They are full of hot air when you boil it down. It is okay if you see momentum in the stock and several promoters are on it, but be careful the price will come crashing down… it always does!!!

3. When you are up 100% sell half.

This does not happen often but if you are a great stock picker then you might be able to do this once a week with penny stocks. This is a great rule because when you are up 100% and sell half you are now playing with the houses money. That means you are on a free ride and only have profit on the line protecting you initial investment. This is a rule you must follow because they can go up just as fast as they come down. This is especially important if you are trading momentum.

Day trading penny stocks can be hard. These are only a few things you should know before you try making money int the insane world of penny stocks. I know many people that are able to make a decent living trading only penny stocks. There is no reason it can’t be you, but it takes time and effort to know the ropes. There is much more that you can learn about penny stocks at picksthatmakecents.com

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Posted by on September 8, 2010. Filed under HUD Homes. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry