Everything you need to know about Day Trading Penny Stocks

Ok! Let’s devote a little time first to a term known as “day-trading” in reference to penny stocks. A person who’s primary goal is to make his or her profits from the purchase and sale of a stock in the shortest amount of time, preferably a single day, is called a day-trader.

Day-traders go for immediate in-and-out gains, and there are lots of them! A day-trader might actually use technical analysis software and real-time financial news stories, from the online service providers or TV networks, to find a stock to buy. They dive in and buy a lot of shares hoping for a quick price increase. They are willing to take a small 1/8th or 1/4 point upward price move on a stock in just a matter of hours (hopefully minutes) for a small but quick profit. Of course, that small profit might not be that small. The size of the profit depends on the total number of shares purchased.

It usually takes some really good late breaking news to make a stock start to take-off on a fast upward move. This can be in the form of a great 10Q report, or a great report on a new product, or even a recommendation in a newsletter. Day-traders look for news that causes quick movement.

Your technical analysis software can recognize price and volume changes in the trading pattern of a penny stock. Sometimes these unusual changes will cause your software to issue a buy or a sell signal. Your software can recognize a trend developing and alert you to make a decision.

To describe day-trading, be nimble is the keyword. Many investors buy stocks with the expectation of holding on for a reasonable length of time for a hefty increase in share price. But not day-traders! These folks think that an hour is long time to wait, and all they want is rather a small move.

Day traders can make huge amounts of money by simply making a lot of trades. They give up the big moves that take longer in exchange for smaller sized profits on a higher number of trades. This only became possible within the past few years due the lower trading cost at discount brokerages.

Normally, penny stocks are not expensive stocks issued by start-up companies or businesses facing bankruptcy and these stocks are traded on the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets. Only very few penny stocks are listed on the NYSE, NASDAQ and AMEX because they are risky. And since the stocks have fewer shareholders, they trade infrequently and can be difficult to sell once you own them.

Here are a few instructions on how to day trade penny stocks for your consideration.

Never consider penny stocks that you acquired about either from unsolicited emails or that are sold by offshore brokers. You should subscribe only to websites that offer real-time information on penny stocks and never forget to pay a fee for their advice, tips and databases. Doing some research about any company you are considering investing in can definitely help you successfully day-trade. Then, read articles in business newspapers and do an Internet search on the company owners. Additionally, always listen to news and rumors, because they are the forces behind driving the penny stock movement. Now, look out if there is a market for the product a company is selling before deciding to day-trade in its stock. And finally, because trading in penny stocks is risky, these brokers are asked to acquire written confirmation about the transaction from the client and along with it is a document warning of the risks of day-trading in penny stocks.