Trading penny stocks can make you thousands, even millions, but you can also end up losing all your savings. Choosing which stock to buy is not an easy task when it comes to penny stocks because most of these companies you have never even heard of before. So you need to have a tight game plan that helps you successfully trade penny stocks. In this article we will tell you 5 of the best strategies you can use to make millions trading penny stocks!
How to pick winning penny stocks?
Before we get into the main strategies you should use while trading, let’s take a quick glance at how you should pick your stocks. The first thing you gotta do is RESEARCH, doing your own due diligence is an essential step in day trading. By learning everything you can about the company and the stock’s history, you will have a better chance of choosing the right ones. There are many factors you have to consider but most importantly, look at the company’s:
- Recent catalysts
- Financial records
- Stock’s 52-week high and 52-week low
- Market capitalization
- Buy-sell ratios and volume
- Industry and competitors
- Earnings per share (EPS), price to earnings (P/E) and dividend yield
- Competitive advantages
You can read more about this in How To Make MILLIONS Trading Penny Stocks 101 and Stocks For Beginners : Everything You Need To Know.
Now that you know how to choose stocks, it’s important to learn some wide trading strategies!
5 Penny Stocks Trading Strategies You Need
The golden rule says never trade money you are not willing to lose but let’s face it no one really wants to lose any of their hard earned money. So the least you can do is abide by the following rules to minimize the risks.
#1 Keep your ears a little bit above the ground
Fintwit, Reddit, StockTwits and Investor Hub are all great platforms to learn about penny stocks. It’s great to spend some hours before the market opens reading and sharing stocks’ insights. However you have to be extremely careful because many companies use these platforms to pump their stocks. They don’t even have to lie, they can just use some influencers to talk about how great that stock is. In a nutshell, you should keep your ears to the ground and know what other traders think but never blindly buy and sell according to a hype or some info you found in a tweet.
#2 Diverse, diverse & diverse
Don’t put all your eggs in one basket, by diversifying your portfolio and owning stocks in different companies you minimize the risk of losing all your money. It’s not only about companies, you should also invest in different industries. Because a company might be doing everything right but macroeconomic trends can deeply affect its position and stock value. For instance, think about what happened to the transportation sector during the pandemic.
#3 Don’t hold the bag
Holding a stock for too long is not the best thing to do while trading penny stocks. Even if you see huge potential for growth, it’s smarter to go in and out quickly. If you can make around 30% gains over a couple of days, then count your blessings and sell. Many investors wait for that 1,000% increase in PPS but more often than not they end up they turn into bag holders.
#4 Buy the rumor, sell the fact
News travels fast in the stock market, so when there’s a rumor about an upcoming catalyst, people quickly start to buy the stock. As a result the stock’s PPS increase, however when the catalyst actually occurs the hype starts to die down. That’s the perfect time to leave with the highest gains.
For example, if a press release was issued stating that company X is planning on acquiring company Y, both stocks will instantly go on major run ups. But by the time the actual acquisition is finalized, many investors will have moved on to the next big thing. Needless to say, that’s not always the case as big catalysts catch the investors for longer periods.
#5 Trade with your mind, not your heart
This seems like a given, but after you start trading for a while you will start to have some favorite stocks or sectors. That can mean big losses for you! Never fall in love with a stock no matter how much money it gives you, it can easily take it away again if you don’t choose the right exit point.
Ready to trade?
If you follow these rules and do your own due diligence before trading any penny stock, your chances of becoming a millionaire are a lot higher!! You can also increase your chances by signing up for our 100% free alerts and get the hottest NASDAQ and NYSE penny stocks before anyone else!
As always, good luck to all (except the shorts)!