I want to go over a few tips if you are considering Day Trading Penny Stocks. It can be very profitable but can also look much different than it is. Penny Stocks always seem great because they are so cheap but don’t associate low cost with low risk. I have made a ton of money day trading Penny Stocks, but I have also lost a lot of money.
It took me a long time to realize that day trading penny stocks is all about a system. This is even more so than large caps since most penny stocks that are popping hard may never see the same price levels again. They usually pop very hard never to return to those prices. They usually bounce up all the way down.
If you are considering day trading penny stocks you must understand that most of the trades that are made on the otc.bb or pink sheets are usually associated with promoters or fraud. This is one of the most important things to understand because you have to know that these stocks make great trades, but terrible investments.
If you are going to day trade you must have 25k minimum in your account. You can visit picksthatmakecents.com and they have a page that states day trade with 5k. That is the only way I know you can get around the SEC required 25k minimum. If you go that page they will give you instructions with a broker that will allow you to day trade with less than the 25k required to day trade. Anyway back to trading penny stocks.
You want to get in and get out with penny stocks. Look for stocks with news and use a 10 minute chart. You need some sort of scanner like equity feed that will have these cheap stocks. You want to try and find penny stocks that are near or making new highs at lunch and jump on board for a quick few cents.
If you are going to day trade them in the morning at the bell you need to keep enough money to average down in case the momentum doesn’t continue. All of the penny stocks that pop in the morning will usually bounce enough for you to average in and get back to even. So let’s say you grab 50,000 shares of a .02 cent stock that is popping really hard and it starts dropping as soon as you get it. Well you would want to have your 2 minute or 10 minute chart up depending on how much volume there is. Once you see the down trend line break you would average down with another 50,000 shares at whatever the price happens to be. For this example we will use .013 cents. So now your average is .0165 and you could wait for it to retrace to .018 and get out with a $75 profit.
I am not a big believer in averaging down but with Penny Stocks it almost seems like you have to sometimes. Because who knows if the price will continue to rise. This is the best way to manage risk in the morning right at the bell.
Picksthatmakecents.com has a great service and they provide pinksheet penny stock picks with entry prices for day and swing traders.
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