In the world of stock trading, penny stocks are often looked down upon by “big” investors. Sometimes it’s because of ego, but other times is simply due to the fact that they can’t move fluidly with these stocks. For the rest of us non-billionaires these stocks offer a perfect opportunity.
Tip One: Understand What Stocks Are and Aren’t
Penny stocks are stocks for smaller companies. However, this doesn’t mean you need to trade stocks that are “micro pennies.” Actually, stocks under $5 can qualify if their market capitalization is low. Honestly, I almost never trade stocks that are 50 cents or under. Why? There’s no reason to and you’ll find most of the “bad issues” happen with those cheap stocks.
Tip Two: No Long-Term Investing
Sorry, you’re not going to find the next Wal-mart in these stocks. Sure it “could” happen, but why waste valuable time? To make a profit all you have to do is trade. Don’t worry about where a company will be in 2, 3 or 10 years from now.
You want to trade stocks for seconds to days at most. I’ve seen many people who help a stock for many, many months only to end up trading for a small loss. Meanwhile someone else is in and out of stocks all day long for a profit.
Tip Three: Play People
Let’s be honest. Most people don’t know what they’re doing, which is good for you. The stock market isn’t about us all being one team. It’s about some people on the losing side and some on the winning side. We can’t all win all the time. If we did, there would be no market.
Use your knowledge to your advantage. Here’s a quick example. I see a lot of positive “hype” news for a company coming out. I know people buy hype. The stock goes up, I then short. The hype goes away and all that’s left is the same old company. The price goes down and I win. And it works in reverse too.
