EZ Traders Forum

[NinaD]

Penny Stock Trading: 4 Basic Rules

Developing a mindset for penny stock trading comes with time. Micro cap stocks are risky investments for any investor whether you’ve got 1 or 20 years trading experience. You could lose every nickel of a penny stock trade if you don’t embrace what we believe are the “4 Basic Rules of Penny Stock Trading”.

(1) Use Limit Orders: Don’t put in a “market order” to buy a penny stock. Market makers will fill your order where they want to and it could be much higher than you want. Use limit orders when you buy, pay what YOU want NOT what the market makers want. The penny stock market can be the “Wild West” when it comes to executing orders so give yourself the best chance to book profits, use limit orders.

(2) Watch The Open: The future of a stock for the day is often told in the first 30 mins or less. When a penny stock experiences high volume BUT remains flat with little or no increase, this is not a good sign. Big selling early means selling will typically continue and the stock will likely weaken throughout the day. On the other hand, good movement early could mean sellers are laying off. If it’s moving and your limit order is filled where you want then you’re half way home to making gains.

(3) Don’t Chase: If your order does NOT get filled where you wanted and the price is running, don’t chase it. Know there will always be a new penny stock opportunity and chasing them up limits your odds of winning in the end. The window of opportunity on penny stocks can be very small. If the you miss the window you will only be buying someone else’s profits on the way down. Trust your read on what happens at the open, put your limit order in and then let the market Gods dictate if you are going to be in this one or not. If you are, see Rule 4.

(4) Book Profits When You Can: Greed with penny stocks typically costs you far more than it makes you. Thinking “this could be the big one” sounds fun but it’s not practical and it’s not going to help you consistently book profits with penny stocks. If you can book gains from 10%-50% and move on, do it. More profits have been lost as traders fall victim to their own greed.
WallStreetGazette.net