Whenever you buy or sell penny stocks, you basically choose between two types of orders – market order and limit order.
Using the wrong order type when trading penny stocks could turn out to be an expensive mistake. This is because penny stocks are usually thinly traded and more volatile when compared to regular stocks.
So, which is the order type that is best suited for penny stocks? Before knowing the answer to that, it is important to understand the difference between the two order types.
In a market order, you ask your broker to buy or sell the penny stocks at the next best market price. The advantage of market orders is that your order would be quickly filled. However, the disadvantage that the order may not be fulfilled at the price you intended, especially if the trading volume is thin. Due to this risk, market orders usually have high margin requirements.
In the case of a limit order, you basically ask your penny stock broker to only buy at or below a certain price. This means that your order to buy or sell the penny stocks may never be executed at a price that is greater than your limit price. A limit order thus makes it possible for you to have more control of the price at which you trade your penny stocks. Using limit orders, you can quickly buy or sell when the penny stock falls to a certain price level.
Remember that market orders are the default for most brokers. This means that until you specifically choose a limit order, you will be making a market order.
Now that you have understood the difference between market orders and limit orders, let’s see which order is best for penny stocks, and why.
Limit orders are best suited for trading penny stocks. This is because market orders have a lot of drawbacks. They are,
#1 The number of Penny Stocks available at the asking price may be low in the case of a market order. Assume that you are trying to buy 200 shares of a penny stock. Assume that your asking price is $0.70 (70 ¢). However, if there are only 100 shares of the penny stock available at that price, then, you may have to pay $0.80 (80 ¢), $0.95 (95 ¢) or even more, for the other 100 shares.
#2 Lower trading volume can push prices when using market orders. Many penny stocks have low volumes of trading. So, when a significant market order is placed for that penny stock, it could cause the prices to surge or decline.
#3 Market Orders Can Cause Wide Spread between Bid and Ask Prices. Even if the last price on which the penny stock was traded was 50 ¢, you may end up paying the lowest available asking price when using market orders. This price could be something much higher.
On the other hand, limit orders are best for penny stocks because
Penny stocks have been called as evil by many who do not understand their amazing potential. There are many reasons why Penny stocks have a bad rep. Today, let’s explore the top 4 reasons why penny stocks are called evil, and why they actually aren’t!
This is one of the main reasons for the negative connotation associated with penny stocks.
The Truth: The fact of the matter is that many traders and investors just use manipulation as the excuse for justifying their poor trading decisions.
There are many large investors who try to keep a stock at pennies by spreading false rumors about price manipulation. It is always best to investigate further about the penny stock before taking such rumors at face value.
Chances are, there is going to be a huge rise in the penny stock’s price once the actual news about the big development or product of the company is unveiled.
Most of the penny stock traders think that the penny stock companies do not give dividends. They consider this as proof that the company does not give out their profits to the shareholders. This is not true at all.
The Truth: There are many penny stocks that give dividends. In fact, there are penny stocks that give monthly dividends too! A careful search can yield many such dividend-paying penny stocks.
There are many websites that give a list of monthly dividend stocks, among which there are many penny stocks as well.
One of the most common criticisms about penny stocks is that in spite of having a large number of institutional and insider ownership, the number of shares short is quite high.
The Truth: Many times, high-level investors look for companies that have a potentially high future value. Then, they short such penny stocks and create promotions to encourage people to short stocks. This slowly results in a self-induced short squeeze.
If you identify such short squeezes early, you can easily make huge profits from low-risk trades. In case you are someone who is a technical trader, you can quickly identify these short squeezes using Bollinger bands. Popularly known as ‘Bollinger Squeeze’, this phenomenon can help in forecasting the big moves in the penny stocks before it happens.
If you are a fundamental trader, you can check out the value of ‘Float Short’ on the stock screener that you use. Choose the stocks with a high percentage of shares that are short. The best among them would usually have an up-day. Such stocks are ideal for short squeeze candidates.
This is possibly the worst allegation about penny stocks. Yes, it is true that there are many penny stocks that are a pump and dump stocks. But that is not true about all of them!
The Truth: Some of the past performances of penny stock could give no indication of its future trajectory. For instance, a biotech stock could soar based on the increase in demand for certain medicines!
As you can see, all rumors about penny stocks need not necessarily be true!
One of the key advice given to all investors is – follow the trend. But what exactly is a trend and how can you make profits from penny stocks by following the trend? Let’s explore more!
In simple terms, trend lines are basically virtual straight lines. The trend line is created by first joining two or more price points of a chart, then extrapolating that line into the future.
Trend lines are of two types – an Uptrend line, and a Downtrend line.
Whenever a stock forms higher highs and higher lows in its price, it is said to be in an uptrend. By joining the pivot lows of two or more price points, an uptrend line is created.
As long as the price of the stock remains above this uptrend line, the stock’s uptrend is said to be strong. The figure below indicates a stock that is in an uptrend.
Whenever the stock forms lower highs, it is said to be in a downtrend. The downtrend line here is formed by joining two or more high price points.
As long as the stock price remains below the trend line, the downtrend is said to be strong. The figure below indicates a stock that is in a downtrend.
Trendlines can be highly helpful for picking out the ideal entry points for buying or selling penny stocks. Let’s see how.
For Bullish Trades
To reaffirm the ideal entry points and exit points for trading penny stocks, Fibonacci Retracements are also used in conjunction with trendlines. Doing so can help to find areas the price is likely to pull back to or move up to.
Trend lines can also be used for forming price channels. For creating the channel line, you have to draw two lines – the first one joins price chart highs and the other price chart lows. Using these channel lines, you can set the stop-loss level for trading penny stocks which are in an uptrend or downtrend.
In the case of an uptrend channel, you can book the profits when the prices reach near the upper line and set the stop-loss order under the lower line.
In the case of a downtrend channel, you can book the profits when the prices reach near the lower line and set the stop loss order near the upper line.
Penny stocks are great for trading. But did you know that investing in penny stocks can also give great returns? It’s true! By starting small, you can ‘make it big’ with penny stock investing.
Now, before you start investing in penny stocks, these are some important rules from expert investors for successful investing in penny stocks.
Always make sure that you never put all of your money on a single penny stock. Remember that picking the perfect penny stock to invest in is impossible for even the most experienced and expert investor. There is always the possibility that the stock price would decline due to numerous external factors or internal company factors. No one can predict the future of the stock with 100% accuracy.
The point is, any successful investing plan needs diversification. You can aim for a portfolio of around 5 to 20 stocks.
Do not buy a penny stock with negative earnings. Remember that if a company consistently loses money, it is a huge red flag.
The research reports on stock market bankruptcies show that negative earnings are the most shared attribute for what causes bankruptcies.
To know whether the penny stock has negative earnings, check if its P/E shows a negative (–) sign. It is best to avoid investing in such penny stocks, no matter how good the prospects might appear to be!
In order to reduce the overall risk exposure of a penny stock portfolio, it is best to invest in dividend-paying penny stocks.
Although most penny stocks do not pay dividends due to their small market capitalization and revenues, there are also penny stocks that pay dividends.
The penny stock companies that pay a dividend are the ones who care to attract sensible investors who want to make money. Investing in penny stocks that pay a dividend is one of the best ways of creating wealth.
Thanks to the magic of compounding interest, a long-term investment in penny stocks with dividends will be able to give you a neat profit!
One of the major problem encountered by investors is not knowing when to sell. But by having a trailing stop, this problem can be effectively solved.
The advantage of having a trailing stop is two-fold. It allows your winning trades to earn more profits while cutting your losses short. By using trailing stop loss, you will be able to participate in most of a stock’s gains as well as protect your downside.
Typically, expert investors use 15% to 25% trailing stop to ensure that it is not hit during any swings in prices.
To be successful in penny stock investing, you would need to perform dedicated research like you would do for regular stocks.
You must enroll in good penny stock courses taught by mentors who actually know the ins-and-outs of the stock market. Be it the various ratios of the stock, or the technical analysis of the chart, or the latest breaking news and development about the stock, you would need to be armed with the necessary knowledge to become a successful penny stock investor.
Stock Options trading has turned out to be progressively prominent with financial specialists for two essential reasons. The first one is that the traders can make substantial benefits in the alternatives market without requiring huge funding to begin. Second, through alternatives, traders can get to a lot of stock for a time-frame without requiring a huge number of dollars or more to buy a relating measure of shares. Both characteristics take into account the capability of extensive increases
This is the basics to learn if you want to earn big amount of money in stock options trading. A vital component to making enormous benefits with options trading is beginning with the essential idea of knowing the distinction in the middle of put and call choices. Puts are the options a trader purchases when he is bearish on a stock. As the stock falls, the places increment in worth. Calls are the alternatives get a trader purchases when he supposes the stock is going higher. On the off chance that that appraisal is right, the calls increment in worth as the basic stock value rises.
Keeping an eye on news events is the key to success in stock options. While it is not a certification of benefits, exchanging investment opportunities for possibly enormous additions around the season of real news relating to the fundamental stock is a habitually utilized and simple strategy for starting speculators to utilize. Clearly, unscheduled occasions do happen, yet financial specialists can utilize sources, for example, Yahoo Finance and organization speculator relations sites to figure out when the following income report is. Choices traders exchange income declarations as soon as possible. Another strategy to consider is exchanging choices paving the way to medication endorsement declarations by the FDA. The FDA has a timetable that traders can use to be arranged for the news.
The most serious issue that buyers face is being right about the bearing the basic stock will move in amid the time period of the bought choices. Restricted a few brokers manage that circumstance is to execute an exchange known as a straddle, which involves purchasing both a put and call at the same hit cost with the same close. For instance, if a trader thinks XYZ Corp. is ready to make a huge, close term move and the stock is as of now exchanging at $50, he could purchase the $50 calls and puts to put on a straddle. On the off chance that that enormous move happens, either the puts or the calls will lose esteem, yet the productive piece of the exchange can more than spread the losing side.
Another way a few dealers make huge options benefits is to purchase call choices on takeover targets. Then again, there are some moving parts with this procedure that make it testing. In the event that the gossip does not transform into an authentic takeover declaration, brokers can lose cash on alternatives that were obtained in reckoning of an arrangement happening.
In this world, everyone is in the race of earning money as much as they can. Penny stocks are one of the most amazing methods to earn insane money in your life. Well, there are a lot of methods to run your penny stock business but this strategy is going to change your life. This is going to be the best strategy for buying penny stocks at a low price and sell them again at a very high price. Yeah! That sounds cool, isn’t? So, you don’t need to spend hours to work on a daily basis. This strategy will help you to earn money on autopilot. All you need is to make efforts in buying and selling. That’s it. So, before starting our real thing, let’s talk about what are actually penny stocks?
Well, penny stocks are very low priced coins. As we can see the name “penny”, it rarely costs a penny. But, you can earn a lot of money with these penny stocks. So, the SEC thinks that penny stocks can be considered anything under five dollars. Penny stocks can be a life-changing project for you; it can make you rich or poor at the same time. Unfortunately, there are a lot of scams and corruption present in this business. Now, it is up to you how you define your strategy to stay safe from scams. A system is developed to save people from the scam, that system will help you to understand everything about your deal. It would be like an agreement. Pink Sheet is a framework that furnishes financial specialists with citation data on stocks that are enlisted with it. Dissimilar to OTCBB, on the other hand, Pink Sheets isn’t enrolled with the SEC and doesn’t uphold any posting necessities. Primary concern: Pink Sheets stocks are hazardous.
So, let’s come to the main point that will be the best strategy for buying (low) and selling (High) penny stocks.
Yes! You need to be practical if you want to be in a long run in penny stocks world. Many penny stocks seller will tell you amazing things about how easy is to earn money with penny stocks, but don’t believe them. Almost 99% of the companies’are a lie and 1% is the real number, so be sure what you are going to do.
You need to build a profit formula for yourself. A perfect business always needs a complete strategy, so you should have an at-least single strategy to make things work for you. For Example: Let’s say, you are going to buy a stock is $2 now you need to make sure that stock should be sold at-least more than $2. If you sell that one product is $5 then you will get $3 in profit. So, you should make your profit formula for a successful journey.
Risks are part of the game here; if you want to grow big then you have to take risks. Believe me! It is worthy to take risks when you are aiming big in your life. Instead of blaming the risk, you should respect that risk as you can’t do anything else. Risks will make your life comfortable forever and ever.
There is no question about the fact that in order to successfully indulge in Options or general trading, you will need to familiarize yourself with certain attributes and acquire a skill set, which will help you in your quest to make fast money. And although acquiring a set of skills through professional coaching and mentorship is a walk in the park, there are some other qualities you must possess or adapt to if you want to become a successful trader.
Being able to recognize company trends and having the diligence to figuring out trading plans is important, but nothing comes close in importance as much your mindset, your discipline and your ability to control your emotions.
Nothing is more pertinent in trading than the psychological aspect of the entire activity. And the reason as to why this is a truism is fairly simple; a trader is constantly coming out of and going into stocks on a short interval, which in turn compels him to make extremely fast decisions. However, in order to make such fast decisions, you need to have a certain mindset. You need to have the discipline to not emotionally trade, but stay consistent with your trading plans and strategies.
Traders when faced with a screen that is bright red, indicating that stock prices are down, have nothing else to do but get scared. And that is a natural consequence of this business. However, traders who get too scared end up liquidating their holding, cashing out – which is not a bad idea, but it isn’t a good idea either. Sure, you may end up dodging some losses, with the emphasis being on the word (some), whereas you will be missing out on huge gains and potentials.
Overreacting to a natural circumstance is not the way to becoming a good trader. A seasoned trader always quantifies the types of losses he is facing if he doesn’t pull out, and tries to implement strategies that can present with a win-win situation in the long run.
‘Pigs get slaughtered’, this is a fairly old, but a very powerful saying on Wall Street. When I talk about greed, I am talking about investors who try their best to keep holding on to winning positions in the market in order to squeeze every last drop out of the trade. This is a potentially dangerous tactic because as a trader you will always stand the risk of getting sidelined or pushed out of your position. And this is when you lose a ridiculous amount of money.
It is important that you understand trading is an art form. There are risk and gains in this game, but the winner is always the one who integrates a thorough strategy, which is predefined, has a calm mind and the nerves to gamble when faced with a sticky situation. Knowledge and research go a long way when it comes to becoming a successful Options trader.
Thanks to their immense profit potential, Penny Stocks are quite well-known. But before you jump right into penny stock trading, it is best to have knowledge about the common misconceptions about penny stocks. Here are the top 4 penny stock myths.
Many investors think that investing in penny stocks is the shortcut for becoming millionaires. They believe that many penny stock companies have immense profit potential. But the fact is that penny stocks are usually exploited by unscrupulous investors, leaving genuine investors with huge losses.
Before choosing a penny stock company to invest in, remember the rule of thumb – if it seems too good to be true, it usually is! Here’s why. If the company has such a great idea or a product, they would have typically sold it to another, pocketing billions. Otherwise, they would have held a massive IPO on one of the major stock exchanges for raising capital.
SEC ensuring protection need not be true in the case of penny stocks. Although SEC has charged Penny-Stock Operators in a push to crack down on repeat offenders, many scams are still very much prevalent. This is because penny stocks are usually not regulated with enough scrutiny to catch scammers.
Many companies listed on the pink sheets are not required to file with the Securities and Exchange Commission (SEC) and are thus not as publicly scrutinized or regulated as the stocks represented on the New York Stock Exchange or the Nasdaq.
Most penny stock companies do not prefer to comply with the small amount of regulation available. So, never choose to invest in questionable penny stocks thinking that the government would protect you.
Although some penny stocks grow rapidly from mere pennies to become expensive, quite a few of them do not! I will explain why. Most of the penny-stock companies are not run by excellent leaders like that of Apple Inc. or Microsoft. In the case of Apple or Microsoft, any decline is price soon leads to turnaround. However, penny stock companies that fall from grace usually find it difficult to climb back higher. So, if the price slides lower for a penny stock, the possibility of recovery is lower when compared to a regular stock.
For picking out good penny stocks, you should not give importance to justify the share prices. Equal, if not more, priority should be given to the stock’s volatility and the type of order as well.
Even if the penny stock is a good one, there is no safe way to control volatility. Your stock price could whipsaw and you may hit your stop loss before surging ahead again. For instance, assume that the stock has 1000 sellers and just 100 buyers. Then, the buyer can set the price at a very low level, forcing the seller to unload his shares at a cheaper price and making the prices go down for the penny stock. Similarly, if you don’t use a limit order, it could prove to be quite expensive to buy stocks.
Quite a few traders believe that making profits from penny stocks is easy and requires no effort. Some even think that profits from penny stocks are simply due to luck. All this is completely untrue.
Even though trading Penny stocks is one of the easiest ways to make amazing profits, it works only if you avoid these 4 biggest mistakes.
Many novice traders jump into penny stock trading without adequate trading education, without developing trading strategies, and without doing any paper trading. Unfortunately, such traders just became a part of the statistic that more than 90% of traders fail!
Every successful trader has taken the time to master the basics of trading. They spend time to create specific trading techniques that are well-suited for them, and fine-tune these strategies after a lot of trial and error. They also make sure to try out their strategies through paper trading before trading in the actual stock market.
Many times, penny stock traders are either too cautious or too careless. Some keep a very tight stop loss and pick only very low-risk trades. But playing it too safe will not help you get good profits from penny stocks, as the rewards of these low-risk trades will also be very low. On the flip side, being too careless can also result in you losing your hard-earned money. This is because high-reward trades are actually high-risk ones a well. The trick is to find the balance – first, identify your risk appetite and then choose your risk tolerance level before entering into any new trade.
Many novice traders do not enroll in good stock market education courses of trained and experienced mentors because of the cost involved. However, the fact remains that experience is the most powerful teacher. Choosing an experienced trader as your mentor can help you scale up quicker as a trader while avoiding the pitfalls. The money you spend learning these strategies and basics would be well-worth the rewards they bring in. Navigating the tricky waters of penny stocks and making consistent profits – this does require the help of an expert.
Many times, people choose penny stocks based on the names they hear from the media. But the truth is that the news of a penny stock get published in media only after the stock has already moved significantly. The technical traders call these stocks as overvalued by this point and the price bubble usually bursts quite soon.
In addition, Penny stocks are well-known for their scams. Many scammers use media for paid coverage of their stock. Once the price gets inflated enough, the scammers dump their shares and make a near profit while genuine investors incur losses.
Instead of following the crowd, makes sure to spend time in researching for good penny stocks. These could turn out to be hidden gems!
Penny stocks are popular due to their immense profit potential. Penny stocks do seem like a great way to buy a huge quantity of stock inexpensively. But on the flip side, penny stocks can also turn out to be quite burdensome if you cannot exit the stock whenever you want to.
Yes, you can get stuck in a penny stock. Let’s see how that happens.
A high percentage of penny stocks are traded in the over-the-counter (OTC) market. OTC is largely unregulated. This means that many penny stock companies can get away with not publishing their disclosure documents – like their financial returns, press releases, insider transactions, and other important developments.
Scammers lure novice investors into investing in such companies with the promise of easy money. Due to their lack of knowledge, these novice investors usually do not check for disclosure documents of the company (like quarterly and annual reports) which are meant to protect them.
As a result, they sometimes purchase penny stocks blindly, which can turn out to be quite an expensive mistake. Penny stocks are notorious for pump and dump schemes. So once the unsuspecting investor buys the stock, the penny stock’s price would suddenly drop. Most of the time, such stocks would have very low liquidity and there would not be any buyers for the stock. As a result, the investor can potentially get stuck in the penny stock.
Other ways through which penny stock scammers trap unsuspecting investors is through reverse mergers and reverse splits.
Here are the tips for avoiding getting stuck in a penny stock.
Check for Liquidity: Before selecting a stock, make sure that it has enough liquidity. Many penny stocks are thinly traded because only a few brokerage firms let their customers trade penny stocks without much hassle. Many times, after any breaking news, such penny stock does not get traded at all. This can cause you to get stuck with the stock. The best way to avoid this situation is by choosing penny stocks with enough liquidity for trading.
Research fundamentals: Make sure to research a little on the company’s fundamentals before selecting the stock. Never buy into hypes. Instead, do your own research to understand if the company is worth investing in. For instance, if you can’t get accurate cash flow, cash balance, and debt figures of a company, it’s not a smart investment idea.
Learn Technical Analysis: Many times, the upcoming move of a penny stock can be predicted via technical analysis. There are various indicators, overlays, and signals that point to an upcoming price surge, decline, or continuation of the trend. Choosing the stock that shows the probability of an upcoming profitable move can help you avoid losses or getting stuck in the stock.
In addition to these, there are various strategies for spotting a potential pump and dump scheme. These are covered in depth in the professional penny stock course.