Here are 6 penny stock trading tips to help you make some extra money! These tips come from my own experience of trading penny stocks for ONE whole year.
TABLE OF CONTENTS
Why Trade Penny Stocks?
The average investor doesn’t have a lot of capital to start with. You hear a lot about people making X amount of money when they were fortunate enough to use 10k or 20k to start out with.
Yeah, nope. Sorry, don’t have that kind of money.
But can I still trade?
The answer is YES.
That’s why you want to buy and sell penny stocks. The capital you need to start out is very low.
Instead of a couple or several thousand dollars. You can start with $500 or even $100.
Now, the formal definition of a penny stock is a stock priced below $5.
These are super cheap stocks with the potential to double or MORE.
But the ones I want to focus on are OTC penny stocks.
OTC meaning “Over The Counter”. These are not traded on the NASDAQ market like the big companies are.
It’s like a sub-division of penny stocks.
A lot more volatile and a lot more money to be made.
Because with great risk comes great rewards.
If you’re not comfortable with risk, you shouldn’t be trading with stocks in the first place.
There are other options to make money that aren’t as risky.
But if you’re okay with risk, keep reading.
How to Start Trading Penny Stocks
Once you’ve made the decision to start trading penny stocks you may wonder where to start.
I think the biggest factor that holds people back when trading is the fear of losing money.
Well to be honest, you are going to lose money. If anyone tells you that you can earn money trading without losing any money then run away from them.
Because that’s a total LIE.
You WILL LOSE money.
How much you lose depends on your strategy.
If you’re still interested, let’s continue to move on.
Scared? Then stop reading because you’re probably better off with safer, long term investments like dividend stocks.
No pressure, do not feel obligated to trade penny stocks to earn money.
There are plenty of ways to make money. Trading penny stocks is just one of them.
So where was I? Oh right.
Pick a Stock Broker
I’ll make it SUPER easy for you. You don’t need to Google “best platforms for trading stocks.”
Or was I too late and you already Googled it?
Etrade has an account minimum for opening an account. It’s around $500.
TD Ameritrade doesn’t really have an account minimum AND they have a great trading platform that is downloadable for your laptop.
It has a tough learning curve but great charting tools.
While Etrade has a web-based platform mostly and a pretty decent mobile app for executing orders.
So the choice is yours. It pretty much boils down to how much money you want to start trading with AND what you prefer to use when trading.
If you want to make a good size of money, I would recommend $500 to start with.
You could start with $100 but the profits will be small. Makes you wonder how anyone could be making money doing this.
Not to nag, but do yourself a favor and start with at least $500.
With that out of the way, let’s jump into the 6 penny stock trading tips!
6 Penny Stock Trading Tips
Start with a Reasonable Account Size
The first of the 6 penny stock trading tips is related to opening your stock account.
And I’m sure you will get mixed opinions on how much to start out with.
So here’s my two cents. Penny stocks -> cents. Get it?
Haha very funny. Sigh, never mind. I’m terrible with jokes.
Back to business.
Start with $500.
Oh wait I just mentioned it.
Well it’s very important, so I’m bringing it up again one more time.
This amount is small enough that it won’t be that painful if you lose it all but enough to make some money with penny stocks.
Doubling your money with OTC penny stocks is more common than you think.
So if you started with $500, it can turn into 1k IF you play your cards right.
Now you might be thinking you could start with $100 if you could double your money. But this size won’t work because you will also need to diversify which stocks you buy.
And this is true for penny stocks as well.
Diversify Your Account
The previous point was leading into this. So numero 2 of penny stock trading tips is diversification.
Getting back to funding your account with $100, you will be limited in diversification. You won’t be able to buy much OR earn much.
And then frustration will set in.
Leading you to quit when you’re just getting started.
So please do yourself a favor to fund your account with $500 at least.
That way you can buy more than one stock and lower your risk of getting your account wiped out.
Okay moving on to the next one!
Trade Penny Stocks on the RIGHT Days
This third one seems odd right?
But contrary to popular belief, there IS a psychological aspect to trading. After all, everyone who is trading is just another human being.
I mean there are some robots involved occasionally but it’s mostly people. People like you and me, people from banks and institutions.
So there are some days that are better for trading than others.
It’s similar to the Monday through Friday work week. Dreaded Mondays and Happy Fridays.
Monday/Tuesdays are usually the best days to buy.
Because investors had time over the weekend to research stocks. Hearing gossips, rumors and reading the news.
They are eager to jump in after the weekend is over.
Wednesdays/Thursdays are usually days to sell. For the traders, they don’t want to hold over the weekend so they will sell to cash in on their profits.
Knowing when the general populous buys and sells works in your favor.
Knowing WHEN to Sell
Without sounding too obvious, this tip may seem like common sense. But new traders are often lost after they bought the stock.
They see it rising and the percentage gains.
Then confusion sets in and they forget to SELL. There is no medicine for regret so when figuring out what to buy, notating when to sell is equally as important.
Write it down, put it on a post-it, or write it on your hand.
Do whatever it takes to get your attention.
Sell the stock when it’s rising or else you will miss out on your gains.
Again, these are OTC penny stocks we are talking about. If you hold them longer than you need to it can be harmful.
The worse case scenario would be having the penny stock go GREY. Meaning it’s delisted from the market and no one can buy or sell it.
This had happened to me and thankfully I had a small position in the GREY stock. About $200 so I didn’t lose out on much.
But lesson learned.
Any OTC penny stock can go Grey anytime so take your gains when you can.
Plan Your Penny Stock Trades
Too many times your emotions control your trades when the market is open.
You see a stock spike 100% upwards and then you get greedy.
Or the stock drops after market opening and you worry about your losses.
If you had a plan in place, you would be better equipped to handle these situations.
The words you write have no emotions. They help you focus when you are wavering and confused.
So make a plan for your trades!
Manage Your Risk
Okay, last one of the penny stock trading tips. Towards the beginning I recommended trading with $500 so you won’t feel the pain of losing money.
$500 is still a lot though. So, to help reduce the risk of losing all of it, here’s an extra piece of advice.
Manage your RISK. If you don’t, you will get burned.
How do you do that?
Decide your risk early on.
Whether it’s a percentage or a fixed amount.
Either way, make your decision and stick to it!
And add it to your trading plan as well.
Once your trade goes bad, if the loss starts hitting your threshold of risk then GET OUT.
No excuses. Sell your position for a loss and so your account can live for another potential trade.
And there you have it! These six penny stock trading tips should help you get started on your penny stock trading journey.
Thanks for reading!
If you haven’t started already. What’s holding YOU back?
Leave a comment below if you struggled to trade penny stocks as a beginner.
What did you struggle with the most?
Is it the FEAR of losing money? Or something else?
I would love to hear the experiences of those who also attempted to trade penny stocks.