How Much Can You Potentially Make Trading Penny Stocks?

Somebody asked me the other day whether you can earn a billion dollars in the penny stock markets and here’s my answer. It’s not possible to make that kind of money in penny stocks. Penny stocks are just too illiquid to be able to get in and out of huge positions like you can in liquid stocks like AAPL or GOOG. The problem is when dealing with liquid stocks you go up against hedge funds and high frequency traders which have a lot more money so they are able to withstand larger draw downs. I make enough money to not have to worry about joining the real world and getting a normal 9:00-5:00 type job. When you are setup correctly with the proper brokers, a specific amount of capital, the correct computers with enough monitors, the correct software, a technical trading system with a positive expectancy, and a rule based strategy, you can make as much money as your capital will permit within reason.

The cap is somewhere around several million dollars per year in penny stocks if you start with a large amount of capital. Being successful requires taking a position size that is relative to your total amount of risk capital. The fraction of capital is usually no more than about 15 to 20% of your capital per position and you risk only just a small amount of about 1 to 3% of the 15 to 20% per trade. When you start with less capital these percentages must increase a lot. Position sizing is a part of money management and it is used to limit losing all my money on one single bad trade. If you protect your capital your total account size will start to grow.

If you start with $5000 total your going be able to make about $1000-1500 per trade times about three to five high probability trades per month. If you start with $50k you can probably make about $4000-5000 per trade. If you start with $100k+ you can potentially make a lot of money because you can take on more risk. The returns that can bear generated in the penny stock market are much greater than anything else besides maybe options or trading on extremely high leverage in assets types such as Forex which can be leveraged up to 500 to 1. These returns require taking a lot more risk but if you have a strategy that allows to pick the correct stocks at the correct times and avoid all other stocks, you will definitely lower the risk by a great amount, but still experience these high returns.

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