Penny stocks and day trading
So, one must be extremely careful while dealing in penny stocks and trade with less amounts to avoid losses. Having said this, penny stocks are capable of doubling or tripling your investments within a year if you invest at the right stock and at the right levels. Now, let us know how to identify the best penny stocks for day trading. Identifying Stocks for Day Trading Recent Movements For investing in penny stocks, it is important that you track the recent movements in these. See whether the stock is in an uptrend, continuous uptrend or a downtrend.
Try to relate the company's financial performance with its stock price to get a clear idea of what the future stock price would be. Choose a Safer Sector For day trading penny stocks, you should choose a relatively safer sector which is not affected much by fluctuations in the market. Stocks of such sector would be safer bets than the one which is in news constantly. Investor sentiment for different sectors can be different at different time of the year and hence you need to study it carefully to know stocks of which sector are in demand.
Avoid Over Valued Penny Stocks The best penny stocks to buy would be those which are fairly valued as compared to their peers. Valuations are always a matter of concern in the case of penny stocks because these stocks react very sharply to any kind of news.
So, finding out their fair value with the help of valuation ratios such as price to earnings ratio or net profit ratio would be a good idea. Sell on Up Moves A common suggestion for all those adventurous traders indulging in day trading stocks would be to book profits at higher levels in these stocks.
You would naturally want to earn money when you are getting a better valuations and this can happen only when you exit all your positions. So, be attentive and develop your reflexes such that you do not miss a single profit booking opportunity. Day trading penny stocks can be done only with systematic stop losses and good stock research.
You can also take help from processional traders and brokers in this regard. So, give it a try if your pocket allows you and reap the benefits. This article is just for reference purposes and does not recommend any stock market transactions. Day Trading for a Living. How to Day Trade Stocks Successfully.
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Not all stockbrokers handle penny stocks mostly because of the small commission on these low low-priced stocks. There are discount brokers that have lower commission rates and smaller initial deposits. Check out any day trading firm you are considering doing business with.
Ask about any record of complaints the firm has had with regulators or their own clients. Choose stocks that you have researched and have information about. When investing in stocks it is important to understand the industry the companies are in. Review historical charts to learn about its past performance and look at its earnings report to find out if it is profitable.
Microcap stocks cover a wide range of industries so it is best to work with companies whose products and services you understand. If the stock is an IPO initial public offerings , read the prospectus of the company carefully to know the financial details of the company such as the amount of debt and amount of capital. Understand money flow Sectors are strong or weak because of institutional rotation of money.
You cannot fight the money flow you can only work with it. Most penny stocks will follow the broad pattern of their sectors but there will be a few outliers. It is always safer to trade within the broad pattern. It has resources that can dramatically increase your returns and reduce the risk of losing your cash.