If you are thinking about trading penny stocks but have never done so before, you’ve come to the right place.
Jumping into penny stock trading without being aware of basic beginner tips will be an unwise move for you financially, as it is very much possible for you to make poor trading decisions that could lead to you losing thousands of dollars. Fortunately, by being aware of basic trading strategies, you can prevent this from happening.
The good news about trading penny stocks is that, if done right, it’s possible to take a small amount of money and turn it into a fortune. Renowned penny stock trader Tim Sykes proved this to us when he turned twelve thousand dollars into over a million dollars within only a few short months back in 1999.
A penny stock is simply a low priced speculative security of a small company that trade under five dollars and oftentimes less than one. The appeal of trading penny stocks is because of the possibility of getting rich quick and not needing to invest your capital over several years.
That being said, trading penny stocks is not as simple as it sounds, so as a beginner trader you should find the information in this article to be highly valuable.
Here are the top tips for trading penny stocks for beginners:
Use A Stock Screener
Your first question probably concerns where you go to trade penny stocks in the first place. Most novice investors will go to forums or just wander from one stock to another without having a clear strategy in place.
This is a major amateur mistake and you can avoid it by simply using a free stock screener. The advantage to using a stock screener, especially for beginners, is that it will filter through the various penny stocks that are out there based on their value, revenue, growth, cash flows, and dividends.
Steer Clear Of Markets That Are Low Quality
The next beginner trading tip is to steer clear of trading markets that are low quality. There are lots of stock markets out there, and of course, not all of them are equal.
In fact, one of the very best ways to minimize risks in penny stock trading is to stick to reputable exchanges such as NASDAQ, NYSE, and the American Stock Exchange.
Be Prepared To Cut Your Losses
This is perhaps the most overlooked penny stock trading tip there is, but it’s also one of the most critical. Regardless of what you’re trading or how much you’re trading, you must always be prepared to admit to yourself that you were wrong and sell your stocks to take a loss. Otherwise, your losses could grow deeper very quickly and you could be in a heap of financial trouble then.
Remember, your first concern when trading stocks should be to protect your money and you’re account, and just one mistake can be enough to annihilate your investments.
Pay Attention To The Liquidity Of Penny Stocks
The last tip is to pay close attention to the liquidity of penny stocks. Not all stocks are the same, and some will sell thousands or hundreds of thousands of shares a day while others will only do a few hundred or less.
A good strategy to follow is to take the amount of shares of a stock and multiply that by the price; this tells you how much money is flowing through the company of that stock each day. Generally speaking, you can expect the penny stocks on the bigger exchanges to have higher rather than lower liquidity.
As a golden rule, avoid trading stocks that only trade a few hundred shares each day, because these stocks tend to be more volatile. After all, it is hard to invest hundreds or thousands of dollars into a small and new company without increasing prices, and with few buyers being around prices may fall dramatically soon afterwards.
Beginner Penny Stock Trading Tips
There are many more strategies for trading penny stocks out there for you to learn, but hopefully this article served as a solid introduction for you on how you can trade penny stocks safely.
