With low costs with the potential for high profits, penny stocks may have an allure to them. But it’s important to know how to use them before diving in head first. When done improperly, trading penny stocks can cause you to lose money, fast. Not to mention, scammers and those looking to manipulate the uneducated are often running the penny-stock game. If you want to get in on this, be sure to do some research and talk to professionals before starting. Here are a few tips that’ll help you learn how to day trade penny stocks.
Forget the success stories
Though it may be tempting to listen to the exaggerated emails and social media posts about penny-stock trading success, you have to ignore them. Time and time again, people treat trading penny stocks as you would buying a lottery ticket. And each time, they lose. If you’re interested in successfully day trading penny stocks, you’ll need to treat them as if you can’t trust them. Be constantly skeptical of them and their potential, or they’ll screw you over at the first sign of weakness.
Not to mention, many stock brokers who day trade penny stocks will tell you lies in order to get you to make the wrong choices. They’ll tell you that you need a huge account to get started or that you need to have a diversified portfolio. Don’t be afraid to put your foot down and do what’s right for you.
Pay attention to the disclaimers, not the tips
Sold more often than bought, penny stock tips may come your way via emails or newsletters telling you when to buy. Don’t listen to tips. Oftentimes, these tips aren’t looking out for your best interests. Instead, these pitched stocks are merely advertisements for stocks that investors want to put in front of buyers. It’s getting exposure for their company without regard for your financial interests.
If you read the disclaimer at the bottom of the email, it’ll show you the potential conflicts of interest that these investors may have. The SEC requires that they disclose this information.
Sell fast and not short
One perk of penny stocks is that they can earn 20 to 30 percent of their worth in a few days. If you’re making this much, go ahead and sell. Many traders try and wait until the stock has a much higher percent of return, but this greedy way of treating penny stocks can put you in a bad position. Penny stocks are volatile and can change quickly. Make the money you can and quickly turn it around and sell.
On top of selling fast, be sure not to sell them short. Though it’s tempting to short the “pump and dump,” it’s illegal and can risk you earnings.
Buy the best, highest volume stocks
To be safe, work with stocks that trade hundreds of thousands of shares a day. Selling stocks with low volumes could be hard to resell. You’ll also want to look for stocks that have had an earnings breakout, specifically ones that are on a high not from pump and dump schemes.
Be ready to kill your darlings
Lastly, remember that penny stocks aren’t meant to be held onto for long. Every penny stocks company wants you to believe that their company is revolutionizing the game. Don’t believe them or in their stock. You have to be cynical and prepared to kill your darlings. Don’t fall in love with a stock, as penny stocks are volatile, can change quickly and could lose you money.