Negosentro.com | Trading Penny Stocks: It’s Not as Difficult as You Think | If you are looking for high potential stocks for investments, maybe the penny stocks are the right choice for you.
Penny stocks are small company’s shares that you can trade for less than 5 dollars per share. Some of these stocks can be traded on large exchanges via OTC transactions. Or you can trade them through the privately-owned OTC market groups. Quotations for OTC transactions are done electronically.
It’s a type of stock in which you should not invest at the risk of quickly losing a significant portion of your capital. But it’s an easy and quick way to generate substantial capital gains.
How to Start Trading Penny Shares?
If you want to learn how to trade penny stocks of small companies shares listed on the world’s major stock exchanges, the first step is to make sure you have the right financial tools. This includes the trading platform (the penny stocks app), the broker and the investment strategy.
To buy shares of a publicly-traded company, find someone who owns shares and is willing to sell them to you. This is the moment when the broker intervenes.
Thanks to the trading platform and the broker you choose, you match your buy and sell orders with those of other buyers and sellers through the exchange that quotes the shares of the company you want to buy or sell.
It is necessary to choose a serious and regulated broker, offering the best security conditions and the highest possible safety.
Strategies
Many newbie investors are wondering how penny stock trading works. One of the best advice that can be given to them is to always rely on a strategy that they trust. The trading strategy adopted by a trader guides him in the analysis of price and in the interpretation of fundamental data to anticipate the future evolution of stock prices. Many traders rely on technical indicators in their analysis and decision making. These can be divided into different categories such as bounded oscillators and unbounded oscillations, momentum indicators or even trend indicators.
Penny Stock Day Trading
This style of trading involves buying and selling financial securities within the same trading session. All positions must be closed before the end of the trading session. It is unusual for a day trader to keep an overnight position open.
Intra-day traders usually rely on small unit time charts to make their trading decisions, which can be tricky. The best way to start day trading is with a demo account in a virtual and risk-free environment.
Penny Stocks Swing Trading
Swing trading, unlike day trading, involves holding positions open for more extended periods, which can extend up to days, weeks, or even months.
This can be explained by the fact that the target amplitudes (whether for the stop loss or the take profit) are much larger. Swing traders tend to mix fundamental analysis and technical analysis in their approach while giving significantly more weight to the technical side by relying on indicators such as moving averages (commonly used for stock trading).
The primary role of a moving average is to indicate the more or less long-term trend of the market; traders can therefore change the parameters (more precisely the period and the method of calculation) according to their needs. This allows swing traders to steer their trades up or down.
Conclusion
Penny stock has many advantages. One of them is great volatility. Also, there is the possibility to bet on the success of a company before investing. However, it’s very easy to get stuck in this type of investment due to the low liquidity of the company you invest in.
