Penny Stock Trading Tips

By Michael Cohen

Penny Stock trading is tough. You can lose everything quickly, and spend years mastering the knowledge, skills and patience needed. Without discipline and a system, you can easily lose a lot of money instead of gaining anything.

Here are the big rules you must follow if you want to make any profits with penny shares.

Use money you can afford to lose.

Penny stock trading is a real gamble. Your chances of earning a bit can just about equal to your chances of losing everything, and in some cases, there are even greater risks of never profiting. Money that you will need for food and rent should never be used in penny stock trades.

Unpredictability is the main feature of the stock markets, and penny stocks are the worst of the bunch. You can make 500% in a single day, or lose 80% in minutes. So don't put your grocery money into play with penny stocks.

Always trade without leverage.

Some brokers let you use margin to trade stocks, even penny shares, and it is a surefire way to get suicidal. Never, ever use margin on high risk penny stocks unless you really know where the shares are headed (insider information), and have extra funds to bring in if it goes the wrong way.

It is always wiser to scale your trades once you get into profits. Never trade your entire account, since you wipe you out of all your money in minutes. you would have nothing to lose if you actually start small, and grow your profits from there.

Understand the market before you trade.

Knowing the market conditions before you buy is a real advantage. It lets you know what might happen unexpectedly, and can lower your risk if done right.

When you are confident about your purchase, you can know how the trade can go, meaning when to get out if it goes down, or when to sell if it goes up. It's like having a map of the possible profits, and lets you trade with less emotions, like the professional daytraders today.

Set your penny stock trading timeframe.

Even if the main goal of your trading is to simply make a lot of money, get an idea about when you would like to get out of the market. Know if this is a day trade, short term trade, or buy and hold trade.

The penny stock industry is consistently moving, and over time, prices and conditions change. This means it is nearly impossible to guess the top price your stock will hit. Although it may be impossible to absolutely determine when you should sell, it is helpful if you get perspective and know your planned selling price. Doing this reduces your emotions of fear and greed, which are normally the things that destroy trading accounts.

Anyone who leads you to believe profits are a sure thing in penny stock trading is a liar. Remember that this particular market, by nature, is volatile and always moving. So you must be aware of the different trends and conditions, and be able to determine your strong strategy to handle the unpredicable conditions ahead.

Make use of all the information you can get, like news reports, directory biographies, product information and competition, as well as technical analysis of the stock price movements, and fundamental analysis of the company. Apply these rules, and you too can profit in penny stocks.