Strategy for Penny Stock Trading Online

In investing, penny stocks are securities that trade for under $5 per share. Some of these, however, truly are penny stocks, trading for mere cents, or fractions of cents. Although cheap stocks like these can make for risky investments, there are gains to be had that are at least proportional to the risks. Following is some information on the strategy for penny stock trading online.

Strategy for Penny Stock Trading Online: Find the Right Stock

The first thing to do when considering investing in penny stocks is to pick the right security. Stocks that represent shares of companies that are very new and hardly established often mean a lot of risks are taken on in a trader's investing in them, so it can be wise to refrain from buying into them. Companies that are well established can make for great investments, even if shares are very cheap. Check trading charts for the past few years at online trade sites to find out how new certain companies are.

Once a somewhat stable security has been found, it is important to determine that nothing indicates that the price will drop in the near future. Referring to any news reports that can affect stock, available for free at discount trade websites like E-Trade, Scottrade, TradeKing, and TD Ameritrade can allow investors to research factors that can influence the stock price. Also take into account other price-influencing entities, such as investor sentiment, that can affect any stock's course: particularly if a security is not terribly popular, it will not take many traders to bail on it to make its price drop and give it bearish course, so consider all of this in finding penny stocks that are likely to take a positive course. Then, consider buying shares of a stock that overall, seems likely to rise in value.

Investing in Penny Stock Trading Strategy

Once an ideal stock has been found (one that is established, seems stable, and is more likely to rise than fall in price based on all indicators and rational predictions), a trader must consider how the money will be made. If a stock is very cheap (say, it costs 2 cents to buy a single share), then a lot of shares must be taken on to see any profit, and to beat commission, if applicable. So, if a stock costs 2 cents per share, spending $100 on a buy will take on 5,000 shares. If any significant increase is experienced after the buy (suppose that is rises from 2 to 3 cents), then great returns can be realized: $50, minus any commission, will be made if value rises by a cent (as 5,000 shares at $0.03 is worth $150).

Buying enough shares of low valued security is an imperative part of any trader's potentially realizing actual gains, as small profit on each share of cheap stock must be seen on many shares for any actual gain in trading penny stocks.

All in all, finding a cheap security that a trader has reason to believe will rise in value, and taking on enough shares (according to its price) that the predicted increase in value will make the investment worthwhile is essential for a successful investing strategy for penny stock trading online. To take on shares when stock show a slight rise that seems to indicate continuing increasing values, try using a stop order, and then, if value rises, shares can be sold later for more.

Penny stocks carry the most amount of risk, so we advice everyone to do cap their max losses carefully. Adding stop limits at reasonable prices sis a must. Trading penny stocks is not a get rich quick system.