Once you know how to buy penny stocks online, you will need to create a trading strategy to help you succeed. Penny stocks are known for their price volatility, meaning that you can lose your investment in a matter of minutes. Without a strategy you risk pursuing a losing position until you’ve depleted your trading account. Here are some tips on creating a winning strategy for trading penny stocks.
1. Trade penny stocks that are listed in regulated exchanges such as the NASDAQ SmallCap Market and the OTCBB. Companies that list stocks on these exchanges are required to provide important investor information such as financial reports. This means that you will have access to this information and will be able to make a more informed decision about which stocks to invest in.
2. Avoid buying penny stocks directly from companies that are issuing them. The reason for this is that without third-party regulation, you’ll have no idea of what the fair market value of the stock is and you may end up paying too much for the stock. This may make it more difficult for you to make a profit on your stock trades. The best choice to buy and sell penny stocks online is always through a legitimate discount broker who will deal with the issuing companies on your behalf. This will also protect you since these brokers will not buy from fraudulent companies.
3. Set a limit order with your broker. A limit order will automatically stop trading when the penny stock drops below a certain price and protects you by ensuring that you don’t pay too much for the stock.
4. Make sure you exercise discipline in your trading. When you’re facing a losing position, it is very easy to get caught up in the moment and keep on trading until you’ve lost a lot of money. Learn how to trade with discipline. If you can’t, you can set stop loss positions with the discount broker that will close down trading when your losses reach a certain level.
5. Research any stocks that you are considering investing in very carefully. Note that penny stocks are issued by smaller or newly-formed companies with smaller market capitalizations. Because of this, there is a certain level of risk in investing in penny stocks since they have no track records. So study any available information on these companies before you decide to put money in them. Or if you have a high risk tolerance, you can hedge your bets by buying only a limited number of stocks and increasing your holdings if you enjoy good results from them.
6. Make sure that the penny stock you’re trading records consistent volumes throughout a particular period. This means that you should invest in stocks that trade an average of 100,000 shares per week rather than one that will trade 500,000 shares on Monday then nothing for the rest of the week. The best discount brokers from trading penny stocks online will provide you with this information through newsletters and research reports.
