The Art of Making Profits from Penny Stocks

While day trading and making money from penny stocks is highly technical, it is also something of an art. There are nuances and things to learn from hours, days and months of screen time, watching monitors for the consistencies and inconsistencies that are inherent in the market. You need to spend that time to understand them and be able to spot them. That is how you become profitable.

When you think about trading penny stocks you need to look out for pump and dump schemes. These happen when a particular person or entity buy a large amount of shares of the stock and then use methods to pump up the value of the stock with inaccurate information. Many times they use fake websites, segments on friendly investor-centric television shows and online message boards. These stock manipulators then sell their stake in the company and make a profit. That is where traditional investors that are employing a buy and hold strategy, can really take a hit.

Day traders have an inherent advantage when it comes to penny stocks, because they are not looking for the long-term hold. They are searching for volatility throughout a day or two. The instance of seeing a stock’s price start to go up wildly during a Wednesday morning should quicken your pace, if you are a true day trading protege. That belies an opportunity. The true pros see that Wednesday spike before it happens and get all their money into that stock, ready to sell at the precise moment, when there are others looking to buy and get in on the action.

The stocks on a national exchange, such as the NYSE or the NASDAQ, by definition, are not penny stocks. The stringent reporting that is required from such stocks mean that the SEC is not going to designate companies on those exchanges as penny stocks. And if the share prices drop low enough, the gatekeepers at the New York Stock Exchange or NASDAQ will drop those companies right quick.

For day trading purposes, you can consider any stocks that are prices between $2-$10 as penny stocks. That is where you can make some real money, if you are careful about what opportunities you jump on and which ones you leave by the wayside. The skill required to discern and act on these opportunities is greater than you can imagine. It takes years of penny stocks on the brain to be able to safely trade these stocks.

Day trading is a discipline that requires hardcore study before you can really get good at it. Spotting the trends and being able to properly assess the risk and understand it all is a set of skills that take many years to develop.

That is why finding a day trading education site that you like and trust is so important. You need to be able to find a set of instructors that can express these techniques in accessible terms, while also finding a chat room community that can help you grasp the day-to-day nuances of the racket. Happy trading!

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