Penny stocks definitely offer an interesting option to invest or make profit – but they’re really volatile, and you need to understand your steps before getting started. In this post, we’ll be covering the fundamentals of how to exchange penny stocks and intertwine some more specialized tools to try out until you’re equipped.  Let’s begin with the fundamentals first.

Penny Stocks 101: How To Invest In Penny Stocks - Penny stock basics

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Penny stocks can be insanely-complicated, so we’re aiming to explain a few of the fundamentals that you’ll be mindful of in this article.

Penny Stocks

Penny stocks include stocks that carry lower than five dollar per share. They prefer to join up with smaller firms, companies with a small past, or businesses with a weak financial history. In certain instances (but sometimes not), shares are not listed on significant securities exchanges, including the New York Stock Exchange or the NASDAQ, perhaps because those markets have minimal standards for the securities that sell there.

For e.g., NASDAQ would spin-off some stock which is traded for less than $1. Rather, Penny Stocks typically operate on the over-the-counter (OTC) marketplace on the OTC Bulletin Board (OTCBB), a different marketplace that helps to trade options like this.

OTC Penny Stock vs. NYSE/NASDAQ Penny Stocks

I would like to give a fast comment on OTC Penny Stocks relative to Penny Stocks traded on big exchanges – as there’s a huge gap in the amount of uncertainty you’re considering. For instance to list penny stock on NYSE, the stock price must be at minimum $1.00 and the firm must be fully clear regarding its monetary as well as other business activities.

Everything that has to move to the OTC marketplace (below $1.00 per share with little disclosure criteria). As per the experienced penny stock investor Ross Cameron, he doesn’t really exchange in penny stocks selling over the counters mainly due to the lack of volatility together with the shortage of regulators in the OTC sector,” and since these stocks “are much more vulnerable to manipulation that renders them risky for trading.

Is it possible to make money with penny stocks?

You can definitely earn profit from a penny stock, as several people has proven – Tim Sykes and Ross Cameron, whom I mentioned above are 2 individuals who spring to attention. Both of them have earned a fortune from day-to-day selling and selling in penny stocks. Although it’s pretty dangerous, they’ve kept coming up according to their own ways of generating steady money.

Now the other way around, you may suffer financially – and lose money rapidly. Particularly if you don’t know what you’ve been doing. Although I don’t ever compare selling and buying stocks with gambling, trading penny stocks causes significant damage if you don’t know how to go about it.

So while I’m attempting to address the fundamentals in this post, it’s completely important to note to risk more money than that you’re confident risking, and ensure to consume the time to learn and test the techniques that succeed for you.

How much should you invest in penny stocks?

Because Penny stocks sell are so inexpensive, you will not need a bunch to get going. That being said, in event you encounter some initial loses, you want to get enough of a buffer. For penny stocks, you’ll be dealing on a day-to-day basis (implying, opening, and closing accounts within a day) as it’s going to happen rapidly. Then you need to ensure that you’re prepared for all types of highs and lows.

That being stated, I assume it is enough to have at minimum $500 to $1,000 to begin (at least) to a minimum have your toes wet.

How to create a trading account

When you’ve a clearer understanding about what Penny Stock is or how they operate, you’re going to have to seek a trading account that deals for Penny Stocks. As I mentioned before, most of the penny stocks do not sell on stock markets just like New York Stock Exchange. And before you begin investing on OTC exchanges, you have to understand the fundamentals, and that is why you must try to open an online brokerage trading account.

Then, once you become really relaxed selling Penny Stocks, you may switch towards a more professional broker that focuses in such kinds of stocks.

There are 2 distinct websites that I would suggest for now to exchange penny stocks – all for various purposes and needs.

Penny Stocks 101 - E*TRADE

If you’re a person who needs much more versatile site with an array of software and services, I’d begin with E*TRADE. E*TRADE also packs some outstanding charting tools to just keep you taking a look at the candlestick maps.

Penny Stocks 101 - Robinhood

If you want to trade out and about and you need to be using your phone, consider Robinhood. Their platform is app-based and desktop-based, and it’s simple to exchange stocks. Where there is a shortage of charting, it compensates for real news, prices (trades are easy to make) and convenience of trading. Currently, it only requires a couple of taps to conclude a trade).

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Configuring your trading platform

All right, well you’ve selected a broker and eventually created an account and financed it or you’re beginning to. Setting up your trading forum will be the next possible option you have to do. This involves some extra physical materials and also some additional software.

One more disclaimer

I will discuss with you whatever experienced penny stock investors prefer but remember to not indulge in any of this material when just starting up, as I would like emphasize emphasize understanding the basics.

You can surely buy it or establish up right away to “be official” and even get discipline attempting to make more reasonable day investment decisions, but recognize that you won’t have to use the maximum capacity of your trading system until you involve more financial resources and understand more of what you’re practicing. That being stated you should take into account having some stuff:

An additional monitor or two of them you only require some more real estate and you’re going to need too many windows to be opened at once.

A stock screener you’re going to need a decent application that helps you to scan stocks to fit your Penny Stock Approach. You can just go simple and only use Yahoo! Finance, but if you’d like to see the details, you’re going to want more sophisticated apps.

StocksToTrade is famous; however I’ve noticed a large number of people incorporating Trade Ideas as well. Remember that there are indeed pricey apps, but they can benefit in the longer term.

Charting software you’re going to require a comprehensive charting platform that lets you do both qualitative and technological research. Trade Concepts are great for it as are, Trading View, Trend Spider, and TC2000.

A decent online broker like E*TRADE, who possess few of the greatest and most versatile investment software and services I’ve found, will get #2 and #3, but they’re not going to be as comprehensive as the paying tools I’ve mentioned earlier. So you might begin with something about E*TRADE and make your way to much more sophisticated instruments. Beyond the tech and tools, you’re likely to require a plan as well as some of self-behavior. Trading in Penny Stocks is also not a scheme to get instantly rich considering what you might have heard on the interwebs. I’m critically evaluating some of the effective approaches below, but you also need to do some in-depth analysis into what type of approach is working for you and your risk perception and attitude.

How newcomers invest in Penny Stocks?


Penny Stocks 101: How To Invest In Penny Stocks - How do beginners invest in penny stocks?

Next, note that a limited number of successful penny stock traders would be successful. There are several explanations for that yet there are two key explanations for this:

  • You don’t know what you’re executing.
  • Trading with sentiment rather than logic

It cost Ross Cameron over 1.5 year to struggle before he began to understand trends that are essentially what he developed in his plan to be productive.

Purchasing vs. short-selling

One very essential aspect to consider about penny stocks is the idea of purchasing and short-selling them.  Owning a penny stock is when you buy the equity with the intention that the interest will plummet upwards – typically that day.

Short-selling, conversely, is simply buying stock shares in the expectation that the value will collapse and that you will be prepared to recover those shares to broker and make a profit. This can get confusing, but let me attempt to describe it to you.

Assume you’ve found a penny stock that you believe would decline in price through the day. Its present share value is $1.00; however you predict it to drop half the value and decline to $0.50 on the day for some explanation.

So you might claim “borrow” 10,000 shares, on the margins of the broker. And you’re on the spot for 10,000 shares transferred to the dealer. Now you’ll   offer those 10,000 shares for $1.00 each (less any commissions, of course) and earn $10,000.

Then let’s assume the share price fall to $0.50 later that same day. You will then purchase back the original 10,000 shares at $0.50 per share for a value of $5,000. And you will “return” the shares straight to the broker and collect the sum ($5,000).

Although this seems fun, it’s extremely troublesome and can only be saved for experienced daily investors with a great deal of money put aside that they’re safe risking.

To Sum up, I prefer concentrating on selling or reselling and buying penny stocks as their worth rises compared to attempting to short-sell them.

Tape Reading

“Tape” is a list of all trades conducted on the same day – it displays the amount, cost and time of every exchange. In brief, tape-reading is now a technique that Penny Market traders utilize to evaluate big movers during the day and with more volatility there is more potential to profit in with a stock price benefit.

Upon the conduction of trade, it displays what is considered a print – that has the amount of shares that have been purchased or sold, the purchase price of each share, and the duration of the specific trade. For any of the sales sites, there is a color mostly on bid and demand for price that gives you an indication of where that stock will be going.

In certain cases, if a deal takes place just at asking price, it’s indicated in green, if it exchanges at bid price it’s indicated in red, but if it exchanges between both, then it’s white. Although this does not imply anything, certain conclusions may be drawn from the performance.

For e.g., if anyone buys security only at (green) asking price, they can imply a bullish stance. Purchasing at (red) bid price can suggest a bearish stance. Since watching this occur several times in succession, it shows a pattern which may be an opening for a swap.

This is only one approach you can utilize the tape to your benefit. Other metrics include the level where the shares are being moved, the number of shares being sold, and offers and bids preserved – that is, basically, whenever there is a lot of trading on such equity, but the value is not varying.

Short Sale Restrictions

Although I usually do not suggest short-selling tactics, it is useful to learn among the most relevant policies all over the process – the SSR, or in other words, short-selling rule. If the stock has fallen by 10% or much more from the closing date of the preceding day the SSR would come into action and prohibit all further selling of that stock till the closing of the next trading day.

This rule covers all stocks – no matter how they sell – but it has a huge effect on investors on the Penny Stock daily traders. A stock which fell by more than 10 percent in one day is a perfect chance in day-to-day trade, but because it was so highly exploited, the ban was placed in effect over a decade earlier.

Again – I highly warn about short-selling, however if you feel about practicing the technique and would like to test it out, realize that there would be big constraints on the SSR which you will have to man oeuvre through if you’d like to earn a profit.

Fundamental and Technical analysis

You’re going to have to perform both technical and fundamental analysis of the stocks you would like to buy. Since you’re not aiming on a penny stock as just a long-term investment doesn’t imply you shouldn’t need to evaluate it like most stocks might.

Fundamental research focuses much more on business, the condition of the market, the profits, the company’s finances and much more associated data unique to the corporation itself. That’s a much greater consideration once you do long-term/value portfolios, but less so once you do penny stocks. Nevertheless it allows grasping the fundamentals of a fundamental analysis.

Conversely, technical analysis, analyses market charts, pattern information as well as other technical considerations by examining past, present and predicted future results. It’s a useful technique you require to trade Penny Stocks, so it’s very essential that you completely grasp the fundamental research until you dive into Penny Stock Trading.

Scanning of stocks for trading

There are now a lot of techniques for identifying and selling penny stocks – however not them all would fit for you, that’s why it’s very essential to read as best as possible and experiment on a paper trading account (indicating fake money) before you can truly sort out what to do. That being said, there are a few basic rules that one should obey in order to filter down certain stocks that could be suitable for trading.

Next, you must do pre-market analysis – i.e., identify shares that suit the requirements until the market starts that day. Ross Cameron employs his stock screen to scan for stocks which are steadily increasing exponentially and also within the price criteria. This may be an indication of an incentive to buy.

Cameron also aims on “gappers” – that implies that there’s something going on within the business. A gapping stock indicates that it meets all other requirements but is valued far below level at which you would want it to be.

Understanding the forms of order

The two main order forms that you’ll have to consider are market and limit orders. In brief, the limit orders are when you specify the price that you are prepared to offer for a given stock, while the market order on the other hand, is where you put an order for the best price available. Fairly easy.

Not that easy. For penny stocks, it’s a bit more complex than that.

When day trading penny stocks, the trends usually change extremely quickly. And if you put a market order, the amount you have to pay by the moment the order is performed will be a couple of cents more than you expected. But with a penny stock, it might be the distinction between a gain as well as a loss in that role.

That’s simpler to tell than done. When you get through the Penny trading you’ll notice the pace with which these stocks go down or up. So when you select a price point and request a limit order, the price may not be available, or it may be far worse than you would by scheduling the purchase correctly.

This is an issue for regular online traders like E*TRADE who’s buying and selling are mostly on secondary market – there is often a pause in the implementation of the trade. That being said, I believe those sites are the safest for all those aspiring to learn Penny Stock investing, but that’s more of a question of mind when you’re investing – you might need to be familiar with a variety of research on managing your orders properly.

If you’ve improved your knowledge and expertise, you should pass on to another broker that deals on the main market and conducts your business immediately. But note that there’s always an intrinsic danger, so gain experience first.

Stock market Glossary

Instead of giving you a lengthy list of the jargon of the stock market, I’m willing to offer you few tools to search for main terminologies.

How to Avoid Losing Money

Penny Stocks 101: How To Invest In Penny Stocks - How not to lose all of your money trading penny stocks

Like I mentioned before, trading in penny stocks is dangerous, and you may lose a bunch from your earnings. Following are two different ways you can stop wasting them all.

Be at peace with uncertainty

Unlike purchase-and-hold trading (or value-investment), buying in penny stocks does have a very little business with underlying business and more with how you perceive the stock behavior.

With solid investment, you can concentrate on discovering stocks which are under-priced and reflect a healthy, strong business that you plan to develop in the coming years. With the value acquisition, you can consider more of becoming a part-time company owner.

Penny stocks, are all about earning in on sometimes volatile) stock activity that same day. This could be a reaction to reporting, results, new product releases, competition, etc. But it’s a lot less about real business and far more about finding and reacting on the patterns you hear.

In essence, that’s also speculation vs. real investment. You ought to be acquainted with the concept of this to handle the highs and lows of the penny stock exchange. Because of the complicated nature of this form of transaction, it is vulnerable to scams. Make sure that you are investing on a legitimate source.

Examine trade volumes

This is also very essential. You could see a penny stock that suits well with your plan and it’s standing at the best price, so you’re buying it. But by examining the trade volumes, you may easily tell that no one is particularly interested in this specific role that same day. This places you at a major detriment and exposes yourself up to a higher chance. But please ensure there’s sufficient trading volume going on every day to become prepared to sell it on that same day if you really need to.

To Sum Up

Oh, there you are with the fundamentals of buying penny stocks. I recommend buying a book or joining up for a course about how to practice more specialized strategies after you have processed this then finding a paper trading site to practice trading until you begin risking money. However if you learn it, trading in penny stocks can be extremely profitable.