Trading penny stocks is one of the riskiest investments in today’s market. The stocks are extremely cheap for a reason, and this causes the stocks them be so volatile.
With that being said, Benzinga talked with Timothy Sykes, Peter Leeds and Ross Cameron to understand the key strategies that help make them one of the top penny stock traders in the world.
Practice With "Monopoly Money" First: Prove that you can make money trading penny stocks through simulators before you start trading with real money. The market is always going to be here, so experts highlight how important it is to practice first instead of possibly seeing detrimental losses in your first week of trading.
Penny Stocks Move Very Inorganically: So, with proper research, you can invest and succeed by just trading the price action.
Penny Stocks Move For Stupid Reasons, But You Can Still Capitalize Off Of This: According to Sykes, he watches to see if penny stocks receive an investment from a billionaire is being featured on a major news outlet or had a recent .com website listing.
Experts Don’t Diversify Their Portfolio: The three experts we spoke to rarely have more than one or two penny stocks in their portfolio.
There Is No “Best Broker”: However, some of the brokers to check out include E-Trade, i-Trade, Lightspeed Trading and Interactive Brokers.
Be Creative: If you are interested in finding a penny stock you think might be a hidden gem, check out the company’s operations. Leeds, the author of “Penny Stocks For Dummies,” recommends calling investor relations or even showing up at the company’s headquarters unannounced.
No Penny Stock Is The Next Amazon: Remember most penny stocks are flat-out frauds.
Experts Might Hold The Stock For 6 Minutes Or Up To 6 Months: If you are a day trader, you may be buying and selling stocks at an average of every five or 10 minutes. But, investors who are looking for long-term plays and do not want to trade much off momentum, might hold penny stocks for as long as six months.
Penny Stock Trading Does Not Need To Take Up Your Whole Day: Most penny stock traders spend only one or two hours a day actually trading.
Stay On The Lookout For Notable Headlines: If you find new you think might is notable, research it, go to trading chat rooms, and see if the news might justify the stock moving higher in the near future.
It's rare for a penny stock to be a long-term buy-and-hold investment. The sector is built on short-term trades. If you notch a sizeable gain over a short period, book it now rather than waiting for bigger profits that may never materialize.
The opening period (9:30 a.m. to 10:30 a.m.Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.
In 2003, savvy investors could have scored Monster shares for as low as $0.25. Instead, this former penny stock has seen massive gains for investors that have continued to hold for the past decade, hence why they're a part of our famous penny stocks list.
"Red hot penny stocks" - perhaps the most common example - is used by tipsters to indicate they have identified cheap stocks which they believe will very shortly increase dramatically in value.
Fidelity is one of the largest online brokerages in the U.S. It's known for its zero-fee trades, ease of use, and extensive research tools. Research tools make Fidelity ideal for investing in penny stocks, as you can access more detailed company data. Fidelity also allows you to purchase fractional shares.
According to a study by the Securities and Exchange Commission (SEC), the majority of penny stocks are speculative and have limited liquidity, making them difficult to sell. The study found that only about one in 1,000 penny stocks become successful mid-cap or large-cap companies.
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