Profitable Penny Stock Trading: What Works, and What Doesnt

Profitable Penny Stock Trading: What Works, and What Doesnt

by James Brumley

Small cap stocks, bulletin board equities, penny stocks ” call them whatever you want. Many of them hold the promise of great fortune. The challenge for investors is distinguishing the winners and losers, and then maximizing that promise. Its not an impossible task though not in the least.

Theres no such thing as an investor acquiring too much knowledge for his or here own good, but this five-pronged strategy may be effective just because of its simplicity.

First, the very best small cap traders tend to at least do one important task very well ” they can differentiate a short-term trade and a long-term investment. Mechanically both trades may start and end the same way. Mixing and matching the underlying philosophies, however, often leads to frustration.

Second, penny stock traders and investors should accept the fact that smaller company stocks are easier to drive higher or lower than large company stocks. In fact, a large institutional player may have the ability to very quickly buy or sell the majority of a small companys float. Traders just need to be prepared to see rapid swings when that happens.

Third, successful penny stock traders focus as much on charts as they do on the stocks perceived value. Sometimes these stocks trade at appropriate values. However, just because theyre undervalued or overvalued doesnt mean theyre going to rally or sink. Reading charts will help time optimal entries and exits of stock picks that are based on fundamentals.

The fourth concept micro cap traders need to be comfortable with is that much of the gains from these stocks can be created even before the company turns a profit. Most everyone wants to invest in a worthy concept, even if its not yet creating revenue. However, if enough traders are piling into the same pre-revenue stock based only on potential, it can still drive the stock higher. In other words, hype is a factor worth mentally incorporating into the stock selection process.

The fifth idea is just simple advice ” know when to take profits. The fear of missing out inspires micro cap speculators to stick with a compelling company. The problem is, this hope-based affinity for a stock can cloud a traders judgment. If a stock turns out to be a winner after profits were already taken on it, just buy the stock again at a later date. Too many traders forego the bird in the hand only to later give up the two in the bush as well.

One last thought the pros and cons of trading penny stocks have been debated for years. While on the surface it may seem as if the arguments against penny stock speculation are strong, theyre typically being made by traders who simply didnt understand these five concepts. The top-performing micro cap stock traders are quite aware of these five simple ideas, however.

The point is, lots of traders are reaping huge rewards with penny stocks. You can be one of them with just a little bit of focus.

About the Author:

Editor of the Small Cap Network, James Brumley holds a degree in finance and has dedicated the last 10 years toward helping investors identify undervalued small cap stocks and profitable penny stocks. Investors looking to generate above average investment returns may stand to benefit greatly by becoming a reader of a free newsletter provided by the Small Cap Network.

Share and Enjoy: