How To Make Money Day Trading Penny Stocks
There’s a lot of money to be made day trading penny stocks. It definitely is not for the faint of heart, since on this site we never shy away from the fact that investing in penny stocks does involve a substantial amount of risk. What keeps people in this business is that when you make money, you literally kill it. If you need to make some quick profits, then day trading penny stocks can be the perfect way to generate some extra income.
While the profit potential is definitely there, that doesn’t mean that you’re going to be making money in the first couple of days. Getting good at penny stock trading requires studying and practicing before you get any good at finding the hot stocks about to explode. Once you get some experience under your belt and your picks get more accurate, you can achieve returns that are way better than you would by investing in the stock market for the long term.
To understand the power of penny stock trading, long term investing in the stock market generates an average yield of about 10% per year. With penny stock trading, returns of more than 100% (that’s when you double your money) are not uncommon, because the stock prices are low and there’s a lot of room to grow. We’re not saying that averaging 10% return a year is a bad thing, it can actually make you wealthy! The only issue is that at the beginning you hardly feel it. On the other hand, day trading penny stocks means that you can target 10% or more in profit every month. Compounding interest is a phenomenal thing. Imagine what would happen to your financial status if you grow your wealth at 10% a month.
How to make big profits in day trading penny stocks?
Obviously, you need to find the best penny stocks to invest in. One of the criteria you should look at is the market capitalization of the companies that are listed. A company’s market capitalization (usually referred to as market cap) is found by multiplying its share price by the number of shares available. That number should be relatively small when compared to other companies in the sector for the stock to represent a great growth opportunity. Of course, different people will have different criteria, but it makes sense that the cheaper the stock, the more growth potential it has, provided that it’s a good company in a profitable sector.
If you come across a penny stock company that’s touted as “the next Microsoft”, or “The next Google”, chances are it’s a “pump-and-dump” scam. Because of their low price, penny stocks are prime targets for people trying to influence their prices by hyping them up without anything really substantial to back their claims. That’s not to say those stocks aren’t good to trade. If you’re day trading and can realize that they’re trading vehicles and not long term investments, you have a good chance of making some money out of them.
That leads us to the final point of being a successful penny stock day trader. Successful penny stock day traders don’t hold on to their winning stocks with the hopes of retiring from the profits of that one trade. This is the province of long term investors. If anything, most day traders will sell a portion of their holdings in that stock to recoup their initial investment, and will then ride the remaining shares as long as possible.
Every investor getting into day trading penny stocks tells themselves that they won’t fall for the hype that surrounds many penny stock offerings, but unfortunately the vast majority of them do, out of fear that they might miss out on the next big thing. Remember that one wise man once said that “you don’t have any profits until you sell”, so no matter how high that stock you’re holding has gone, until you sell it, you haven’t made money yet.
The goal of this post is not to discourage people trying to make money day trading penny stocks. In fact it’s quite the opposite, as we want you to be ready to face the challenges that will come with such a great money making opportunity.