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How to Make money on Penny Stocks

By Edited Nov 13, 2013 0 1

Penny stocks are generally stocks available for trade on the US Over-The-Counter market. They have very small market caps, and often trade at very low prices, even well under a penny.

There is an opportunity to make excellent daily returns trading penny stocks day-to-day or even minute to minute. However, it comes with great risk and you must be willing to sell just as quickly as you are willing to buy. Trading US OTC penny stocks is only recommended for those who are able to risk losing up to 100% of their investment, although it is very hard to actually lose 100% if you follow the right advice and trade quickly.

Rarely do you want to invest in penny stocks because they often have little company information available and go through periods of high volatility both on price and volume. During a certain period of time they can be very liquid, trading millions of shares a day, but once traders have their attention on other stocks, that liquidity can dry up making it very hard for you to sell at a favourable price if you hold on for too long.

Most penny stocks are traded on the basis of technical analysis as opposed to fundamental analysis. Usually alerts are activated on penny stocks when volume increases to higher than normal levels and it appears either ready for a breakout above historical prices, or it is about to reverse a downtrend and head back up in price.

Because there are thousands of penny stocks to choose from, it is impossible to try to follow them all. There are numerous penny stocks email newsletters to sign up with. I have signed up with several which I find effective because sometimes they alert the same penny stocks at the same time while at other times alert different stocks.

When they all alert the same stocks at the same time, I know that those particular stocks have high potential for big gains and big volumes because the alert on them is very widespread. I have yet to determine if these stocks are just coincidentally being alerted by the different newsletters at the same time because they all happen to match their technical indicators at once, or if these newsletter services are purposely working together so that their picks work out well for them and their subscribers and they look good. Either way it doesn't matter if you maintain diligence in your trading.

As I mentioned before, the key to trading is to be quick. Sign up with a few newsletters and review when they send out their alerts and watch a few of their penny stock picks first before actually putting up any of your own money. If a newsletter issues an alerts page that shows their pick right at opening bell (9:30 AM EST is when opening bell on all US stock exchanges occurs) that newsletter is the best bet for making money. If however, they send you emails at 9:45 AM EST or later, you may check the pick they send out and notice that it is already up, for example, 25% or more and is probably not worth trading. They may be purposely sending the alert out that late because they bought in cheaply at 9:30 and want to sell to others at 9:45 for an easy 25% in 15 minutes for them. Then after that the stock could rise further or drop back down, but they already secured their gains while you are still at risk.

The key is to review the newsletters you sign up with and try to determine for yourself if they are trying to get you into potential big winners with them or if they are trying to sell you their junk at a price profitable to them.

After you have reviewed the performances of each penny stock newsletter's picks, you'll be able to best determine your own course of action. You'll notice some stocks start with a very small gain at opening bell (maybe 0-10%), move up to 25% or more in the first 10 to 15 minutes, then move back down so they are up 0% by the end of the day. Other times you'll see them perform the same way up until 9:45, but then they continue upwards, sometimes ending up over 100% in the day. Other times the stocks may even drop to -25% or more from opening bell as traders in the stocks are aware of the news alerts and actually try to sell or short sell to act as a contrarian and scare the newsletter subscribers into selling at a loss.


When you get a feel for the style you are willing to trade, then you can start putting money into a position. The key is to have a broker that can fill your trade quickly over the internet. If an alert is sent out on a stock that you can only trade over the phone with your brokerage, forget it. By the time you put in the order either for a buy or a sell, the time elapsed probably means that the stock has moved up if you were trying to buy, or down if you were trying to sell.

My personal preference when buying penny stocks is to buy immediately at the opening bell then sell a few minutes later when it is up 25% or more. It takes a quick hand with quick decision making skills but in the end makes me a good amount of money in a very short time span. I always show discretion when trying to buy. If I feel a stock has moved up too much by the time I have an opportunity to buy or if I don't feel right about it for one reason or another, I skip out on it and wait for a new alert the next day. There will never be any shortages of penny stock picks but if you try to get into all of them that's when put yourself at risk of a large loss.

There are other great resources for trading penny stocks carefully and profitably on the web

Refer to my other investment articles if you are interested in learning about:

Junior Gold Explorers

Biotech and Pharmaceutical Stocks

Canadian Bank Stocks

Natural Gas


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Comments

Jul 7, 2011 3:58am
smoot27ryan
Good Article!
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