You may think that day trading penny stocks is a difficult thing to do. In reality, it is very similar to day trading in mainstream stocks in that the basic principles are similar - you attempt to profit from the short-term fluctuations of the stocks. The main difference lies in the fact that penny stocks are riskier investments than mainstream stocks for many reasons, but the returns on wise decisions are also often greater than those with their more mainstream counterparts.
Requirements of Investors
It is this inherently riskier nature of penny stocks that demands a different breed of investor. Well, not actually as different as you may think, but you have to tweak your thinking a little if you are jumping from the Big Boards to the Pink Sheets. This piece of advice to take it slowly but surely is even more important when you are totally new to stock investments.
Moving on, there are three personal requirements demanded of penny stock investors in order to become successful. Take note that one is not necessarily more important than the others since you must be able to combine all three in a balanced way.
First, you must be able to monitor your penny stocks holdings effectively. You should have access to the Pink Sheets and to your broker via the Internet and phone line, both of which will assure that you can take action the minute you want your penny stocks to move in either the buy or sell mode.
Second, you have to be patient with your research, your moves, and your investments. Of course, day trading in penny stocks is one of the quickest routes to pocketing good profits, but it is also one of the worst ways to lose plenty of money. Often, you will go for weeks without taking any action, but it should be for a good reason. Plus, you also need to practice patience in doing your research.
Third, you must be willing to take on very high risks indeed. As most traders put it, a strong stomach is necessary for the business. Be ready to handle stress, no thanks to the risks involved, to put it simply.
Goals of Investors
Obviously, the main goal of day trading in penny stocks is to profit at least 100 percent from your investments, although the best goal is several hundred percent. What may not be obvious is that said several hundred percent profits over initial investment should be earned over a period of one year in smaller increments.
Thus, you have to take smaller increments anywhere from 10 to 30 percent over several transactions until such time that your overall goal is achieved. You must never seek to profit big time in just one or two times because that would also expose you to higher losses. In the end, your smaller gains in higher frequency will be better for your portfolio than taking in larger gains in lower frequency.
Day trading in penny stocks is as profitable, maybe even more than trading in mainstream stocks, if and when you enter its world with the right mindset, approach, and techniques.