Do you know how to trade penny stocks? Well, considering that you’re on your way to becoming a day trader or looking at how to trade stocks part time, it would serve you well to know what exactly is going on.
Ask any investor and they’ll tell you that they have tried-and-true strategies they use every day to maximize their gains. Now, no one is going to tell you their secrets, but we wanted to give you a leg up and help you out a bit. After consulting with our team of market experts, we’ve hand selected the 5 most commonly used strategies for trading penny stocks.
Scalping Penny Stocks
One of the most common trading styles used by active traders is as scalping. The basic idea with scalping is to execute many trades throughout the day to take profits purely based on price changes.
Scalpers will execute trades fairly often to maximize the of winning trades versus the size of their gains. Think of it as quick, small bites versus trying to invest in course. The key to scalping is to make trades as fast as possible and know when to get out. Any major activity can wipe out a bundle of small profitable trades.
Day Trading Penny Stocks
Whether this is your first foray into the stock market or you’re a pro, you’ve likely heard of day trading penny stocks. Day trading is all about finishing out one’s positions before the closing bell. No day trader will hold a position overnight, it’s just not what they’re about.
What’s interesting about day trading penny stocks is that these traders cannot capitalize on any overnight activity. This is different compared to scalping. It tends to be less risky. But Day traders are always paying attention to media headlines and speculation surrounding the stocks they’re watching. Day trading is a very active style of trading within a finite amount of time.
Short-Term & Long-Term Swing Trading For Penny Stocks
Swing trading penny stocks to a style of trading used by traders who are trying to make gains over a longer period of time. This is usually longer than that of a day trader or of a scalper. Naturally, there are two types of swing trading: short-term and long-term.
Short-term swing trading focuses on a timeframe of anywhere between one to two days. Like day trading, short term swing traders use very little fundamental analysis. Compared to day traders, short term swing-traders most be wary of overnight price action and gap ups, making their trades far . Having said that, a higher risk can mean higher rewards.
Long-term swing trading focuses on price movements over the course of several weeks to a month. Many refer to this style of trading as “the long game.” Similarly to short-term, long-term swing trading is susceptible to gaps up and gaps down. But the difference is that long-term swing traders will typically ride out these movements in hopes of more sustainable growth over time.
Long-Term Penny Stock Investing
Investing in penny stocks is a completely different ball game than that of a day trader or scalper. Long-term investors will prepare to hold positions for anywhere from a few months to several years. According to some analysts, investors who make long-term investments tend to use company or market events as exit points.