Why are great day traders flocking to penny stocks day after day when most investment experts say that penny stocks are super risky, terrible investments? In a word: volatility.
The up and down nature of penny stocks make for great gains for day traders. Stocks need to move in order for day traders to make money on them. When it comes to day trading, having the right strategy and having a plan for each and every trade is paramount if you want to be profitable. Penny stocks, with all their movement and volatile nature, make for an great chance to implement proven day trading strategies.
Penny stocks are small-cap stocks. Which means, by the definition of the Securities and Exchange Commission, they are stocks that trade at a share price under $5. Plenty of day trading education sites consider any stocks trading between $2 and $10 to be penny stocks for the purposes of their momentum day trading strategies.
Many traditional investors see penny stocks as the uncharted frontier of investing, rife with the potential for scams and fraud. But they are mostly just companies that are not listed on the big exchanges and do not have the glitz and glamour of media coverage that other larger companies do. You won’t see many penny stocks on the NYSE or the NASDAQ. They are usually traded on the pink sheets, because back before computers, penny stocks were listed on actual pink sheets.
For day trading purposes, it helps to see penny stocks as companies that are traded under $10. What you need to do is find those handful of penny stocks are poised to make a big move. The trick is getting on those stocks before they make a big move so you can lock in your profits
It takes time and dedication to be able to study the markets so you can spot those stocks on the fly. Screen time is a very important part of learning how to be a day trader. Some veteran traders spent nearly 2 years trading penny stocks before they were able to see the patterns. That is why taking online day trading classes is so important for learning how trade penny stocks. There are sites out there that can provide you with the training, practice time and strategies to be successful.
Penny stocks are not for investing. That is one aspect that traditional Wall Streeters get right. You need to have a short-term outlook to be able to make money on penny stocks. You are not going to find the next Amazon or Facebook on the pink sheets for a long-term, by-and-hold strategy. One of the keys is to remember that penny stocks can have terrible fundamentals and still be ready to shoot up 200% in a single day, based on breaking news of a new product. You need to be able to implement specific rules and have a concrete plan in order to find those stocks. That is what penny stock day trading is all about.