Strategy for Penny Stock Trading Online

Penny stocks are securities that trade for less than $5 per share. Some of these, on the other hand, are true penny stocks, trading for pennies or fractions of pennies.

Although cheap stocks like these are risky investments, there are opportunities for gains that are at least proportional to the risks.

The following is some information on penny stock trading online strategy.

Strategy for Penny Stock Trading Online: Find the Right Stock

The first step in investing in penny stocks is to select the appropriate security.

Stocks that represent shares of companies that are very new and barely established often imply that a trader's investment in them involves a lot of risk, so it may be prudent to avoid them.

Even if the shares are very cheap, well-established companies can be excellent investments.

Examine trading charts from the last few years on online trading sites to determine how new certain companies are.

Once a relatively stable security has been identified, it is critical to ensure that nothing indicates that the price will fall in the near future.

Referring to any news reports that can affect stock prices, which are available for free at discount trading websites such as E-Trade, Scottrade, TradeKing, and TD Ameritrade, can allow investors to research factors that can influence stock price.

Consider other price-influencing entities, such as investor sentiment, that can affect any stock's course: especially if a security is not terribly popular, it only takes a few traders to bail on it to cause its price to drop and give it a bearish course, so take all of this into account when looking for penny stocks that are likely to take a positive course. Then, consider purchasing shares of a stock that appears to be on the rise.

Investing in Penny Stock Trading Strategy

Once an ideal stock has been identified (one that is well-established, appears stable, and is more likely to rise in price than fall based on all indicators and rational forecasts), a trader must consider how money will be made.

If a stock is extremely cheap (say, 2 cents per share), a large number of shares must be purchased in order to make a profit and beat commission, if applicable.

So, if a stock costs 2 cents per share, a $100 purchase will buy 5,000 shares. If there is a significant increase after the purchase (say, from 2 to 3 cents), then great returns can be realized: $50, minus any commission, will be made if the value rises by a cent (as 5,000 shares at $0.03 are worth $150).

Purchasing a sufficient number of shares of a low-valued security is an essential part of any trader's potential for realizing actual gains, as a small profit on each share of cheap stock must be seen on a large number of shares for any actual gain in trading penny stocks.

Overall, finding a cheap security that a trader has reason to believe will rise in value and purchasing enough shares (based on its price) to make the predicted increase in value worthwhile is critical for a successful penny stock trading online investing strategy.

To buy shares when they show a slight rise that appears to indicate continued rising values, try using a stop order, and then sell them later for more if the value rises.

Penny stocks carry the most risk, so we advise everyone to carefully limit their maximum losses. It is essential to include stop limits at reasonable prices. Penny stock trading is not a get-rich-quick scheme.