Two Tactics For Penny Stock Fortunes
As you venture on the precarious path of day trading penny stocks, you should have a strong hold on fundamental strategies used by savvy traders and practice those proficiencies in paper trading (practice trading without money).
Once you understand and appreciate the perils taken in day trading penny stocks, you will need to master the essential strategies exercised by penny stock traders. You must acquire an understanding of both the penny stock long play and the penny stock short play. You should practice these tactics long before you connect a real bank account with a brokerage account.
A long play is just like investing in a growth stock, except you buy penny stock well before a strong history has been established for the stock’s company. A long play basically means buying a penny stock and then holding it for a long term investment. You can really make a ton of money if you hit upon the penny stock of a company with a great product and ton of potential.
Both of these penny stock tactics will be used in buying penny stocks in general but only short plays will be utilized in day trade penny stocks.
Short plays in penny stock trading are a more daring enterprise and are more explicitly for the day trading penny stock traders. In penny stocks short plays involve short term investments based on the pattern of peaks and valleys exhibited by the stock. To understand channeling, just imagine two straight flat lines placed along the jagged line of a line chart; the lower line represents the average low values of the stock and the higher line represents the average high values with the space between representing its channel. Then once you become confident you have determined its pattern, an aggressive penny stock investor will continually buy on the low point and sell on the high point.
In penny stock trading, this can be particularly risky for two reasons: there is an abundance of securities fraud occurring in penny stocks and two, penny stocks lack liquidity. Thus they will be hard to trade away fast, and end up buying on the low but unable to sell it during the short time it is at its peak.
So be very careful what information you believe on the Internet. If you really want to succeed with penny stock trading, then you need to exercise an extra dose of skepticism and caution when assessing data on a penny stock, especially if you intend to day trade penny stock.
While it is quite possible to earn good money through penny stocks, do not underestimate the amount of risk included and do not buy penny stocks without doing your due diligence.
This entry was posted on Monday, November 30th, 2009 at 5:26 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.