If you’ve been thinking about getting into penny stock trading for a while now, you should be aware of some basic tips and strategies that can help you minimize risk as you begin your trading journey.
The key to success in trading penny stocks is to steer clear of risky investments or scams and instead look for companies with a high potential for expansion in the near future.
With that in mind, here are the top penny stock trading strategies to get you started:
Only Trade On High Quality Market Exchanges
There are multiple stock markets in which you may trade penny stocks. However, not all of these markets are equal. If possible, stick to penny stocks on the larger and high quality markets such as the American Stock Exchange, NYSE, or the NASDAQ. Over the counter (OTC) trades in lower quality exchanges are far riskier.
Trade penny stocks with a realistic outlook of how things are likely to go. It’s very rare that anyone becomes a millionaire overnight or over the weekend with penny stock trading, even though that’s what draws many people to penny stock trading in the first place. Rather, a return of twenty to thirty percent will be far more reasonable and is what you should expect.
Utilize A Stock Screener
The best way to quickly narrow down the types of penny stocks that you would like to trade will be to utilize a stock screener. A stock screener enables you to filter stocks based on their value, their revenue or earnings, cash flows, and dividends. It certainly beats having to aimlessly research stocks on forums or messaging boards instead.
Pay Attention To The Liquidity of a Company
Finally, pay close attention to the liquidity of a penny stock’s company. This is a major indication of whether the company will be worth investing in or not.
Remember, some penny stocks trade hundreds of thousands of shares every day, while others only trade a couple hundred. To determine the liquidity of a company, you need to multiple the price by the amount of shares that are being traded. This instantly tells you how much money is flowing through the company on a daily basis.
Generally speaking, the penny stocks on the larger exchanges will have a higher liquidity than ones that do not. They are also safer to invest in as well, because stocks that only have a few hundred trades each day tend to be highly volatile and are more easily manipulated.
Starting Your Penny Stock Trading Career
There are many strategies and methods to follow when trading lowly priced stocks, but the best strategy of all is to diligently research each penny stock before you invest. The last thing you want to do is become the target of just another pump and dump scheme. The penny stocks of companies with smaller market capitalizations and less regulations are the ones that are more likely to be manipulated.