Two Tactics For Buying Penny Stocks
As you venture on the perilous course of day trading penny stocks, you must understand the basics employed by all winning penny stock traders and practice these strategies through trading in paper (trading practice with no money).
Once you understand and appreciate the perils involved in day trading penny stocks, you must then master the maneuvers utilized by experienced penny stock investors. The first tactic I will hash out is the long play and the second is called the short play. I encourage you to practice both of these before you put real money at risk.
A long play is just like investing in a growth stock, except you buy penny stock well before a strong history has been established for the stock's company. A long play basically means buying a penny stock and then holding it for a long term investment. You can really make a ton of money if you hit upon the penny stock of a company with a great product and ton of potential.
Both of these penny stock proficiencies will be applied in buying penny stocks in general but only short plays will be employed in day trading penny stocks.
Penny stock short plays are more for the bold-hearted day trading penny stock investors. Short plays involved extensive pattern analysis to determine how a stock channels. To understand channeling, just imagine two straight flat lines placed along the jagged line of a line chart; the lower line represents the average low values of the stock and the higher line represents the average high values with the space between representing its channel. Then once you become confident you have determined its pattern, a bold penny stock trader buys at the low side of the channel and sells at the high side.
With penny stocks, this is often very risky for 2 specific reasons: there is an abundance of securities fraud occurring in penny stocks and because you'll find low liquidity in penny stocks. Thus they will be hard to trade away fast, so you buy that penny stock hoping to quickly dump it but then you can't get rid of all your shares before it drops down in value again.
So be very careful what information you believe on the Internet. If you are serious about buying penny stocks, then you need to exercise an extra dose of skepticism and caution when assessing data on a penny stock, especially if you intend to day trade penny stock.
While it is quite possible to earn ample money with penny stocks, don't underestimate how much risk you will endure and please don't start trading penny stocks if you can't exercise your due diligence.