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The topic: How do I trade penny stocks?
We get this question a lot because there is no shortage of people online talking up day trading. A quick search on YouTube and you’ll find and endless stream of videos with some guy smiling in front of a computer with a bunch of charts on the screen and a promise that he can teach you how to make thousands of dollars from anywhere in the world!
The problem with day trading penny stocks is that it combines two of the most destructive investing pitfalls:
– Trying to time the market
– Buying “stocks” instead of businesses
A lot of our videos talk about the difficulties of trying to time that market, that is, to read technical indicators to try and buy stocks at the absolute bottom and sell them at the absolute top.
Day trading takes market timing and puts in on steroids because buy and sell decisions are made daily or hourly based on stock price movements. On top of the issues that come with timing the market, day traders are often paying fees on every. single. transaction. So even if trades are profitable, they come with $5-$7 brokerage commissions.
Oh, and because day trading tends to denominate time in hours, days and weeks, most of the gains investors earn are taxed at the short-term capital gains rate — aka your standard income rate, which is between 10 and 37% for most people — instead of the more favorable tax rate investors get for holding an investment long-term — 0, 15, or 20 percent.
But you would be lucky to even have profits to tax with penny stock day trading.
In the mid 2000s, a group of academics studied the activity of day traders on the Taiwan Stock Exchange, they found:
Heavy day traders earn gross profits, but their profits are not sufficient to cover transaction costs. Moreover, in the typical six month period, more than eight out of ten day traders lose money.
The researchers closed with saying:
Prospective day traders should be apprised of their likelihood of success: only two out of ten make money; fewer do so consistently.
Market timing is hard, which is why so few people are able to do it and make money consistently. Add to that the seedy elements of penny stocks and it becomes even harder to make money.
The world of penny stocks is rife with speculation and hearsay, and these stocks tend to move more on buzz than core business fundamentals.
That’s because penny stocks are generally:
Smaller less established companies, have market capitalizations (or total business value) of less than $100 million, and share prices below $5, trade OTC, or “over-the-counter,” meaning that they aren’t traded on major exchanges like the New York Stock Exchange or the Nasdaq.
This means that the companies don’t have to follow the more rigorous reporting requirements established by these major exchanges, AND that shares are less liquid.
Liquidity is a squishy concept, but basically a less liquid stock will move more dramatically when any one person tries to buy or sell it.
Penny stocks often catch the eye of new investors because the shares don’t cost a lot of money, and the low share price makes big returns so easy to imagine. It doesn’t seem far fetched for a stock currently trading at 10 cents to one day be worth 30 cents — and with only $100 you could buy 1000 shares!
The reality is that those shares are probably priced at 10 cents for a reason. Most penny stocks are unproven businesses with limited operating history, and many of them don’t have tangible products or profits to show investors. They trade over-the-counter because they operate on the margins of our financial markets, which makes them a rich area for fraud and manipulation.
In a best case penny stock scenario, you might be buying an unproven company that hasn’t been vetted by analysts and exchanges.
In the worst case scenario, you could be a sucker for pump-and-dump schemers.
Penny stock promoters will talk up little-known companies worth only a couple of million dollars and blast online forums explaining that the business is working on game-changing technology that could make the company worth 100X what it currently is.
Before they do this, they’ll buy shares, then enjoy the ride up as new investors bid up the stock price, then the fraudsters will cash out and make money.
Their followers will be left holding shares of a company they don’t actually know anything about, and with fake hype gone, the shares will drop back down to their previous lows.
Penny stocks and day trading are one of those situations where two negatives don’t multiply to make a positive for investors, they add to create an even bigger loss.
Are Penny Stocks Legal, Everyone Fails With Penny Stocks & Day Trading — Here's Why.
Precise Penny Stock Selects – The Very Best Cent Stock Picks
When I first began trading penny stocks I signed up for a penny stock newsletter. Like gambling, it is an amazing service and luck likewise plays an element. That result in obsolete and limited financials of the business.
Everyone Fails With Penny Stocks & Day Trading — Here's Why, Get top full videos about Are Penny Stocks Legal.
These Financial Times Are Ideal To Start Letting Your Cash Make You Money
This can often get you a quicker fill at the quote. Some are making every day individuals very abundant. Two things can have an extensive impact on this nevertheless. It is really necessary that you stay away from these traps.
There are different methods in which you can trade in the stock exchange and penny stock trading is among them. This term is in some cases offered to the trade in stocks that are valued at less than $5 each. When it comes to performance, these companies have little market capitalization and do not always have a great track record. Because of the huge risk and benefits involved, trading in penny stocks can be compared to playing a slot machine. The stocks are incredibly unstable and undergo being manipulated by fraud artists. It is therefore very typical to see at least one penny stock in the portfolio of a knowledgeable stock exchange financier.
The very first thing you can do that 95% of penny stock financiers neglect is patterns. Patterns are any pattern you can find in the history of a stock cost. You will likely see a trend in it’s cost if you view the stock rate over the last couple of years. This enables you to understand when the price of the stock is at a low point and at it’s peak. With that information you can buy at the dip and offer at the peak with fantastic ease. This strategy does not work 100% of the time however I have actually had great success with it. It is an excellent method to find out the Best Penny Stocks to purchase.
The method I utilize takes very little time to discover and extremely little time to implement continuous and this suits my needs completely. It is simple and simple and makes very constant high revenues for me. Trading Penny Stocks is my “go to source” for generating income when I require more cash for something I really appreciate.
Now while technical and fundamental research, in addition to searching for news releases is always practical when choosing where to put your capital. Penny stocks rarely follow the conventional rates formulas of the large cap companies so we can not rely on the very same strategies for discovering business with excellent value or development potential customers.
And third, with little amounts of Penny Stocks Trading cash (say Rs.15,000) you can buy more shares of X (1000) than A (just 20). So even a Re.1 gain will provide a profit of Rs.1000 in X and just Rs.20 in A.
This has been among the highest recorded trading, signing up a growth of 1922%. Having begun trading at $1.44 it is now trading at $29.12. When preparing a list of cent stocks like this, we discovered it necessary to highlight the considerable improvement that these stocks have made.
Buying penny stock can be harmful to your monetary health. So it may be best to keep away from them. Nevertheless, if you are still a game for it, tread (and trade) with severe caution. Please do take excellent care of your cash.
You can see how limited this is to a trader who actually desires to “play” the market. The art of comprehending the trading ways of the stock exchange requires time and practice. Make sure not to bring any of these stocks ahead.
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