I wanted to bring up something that few people realize about trading penny Stocks. In general the average person looks at the penny stock market like a casino and tries to make money by “investing” a few hundred dollars in a penny stock. What they are not aware of is the fact that there’s almost no chance that they ever will learn to profit this way. Penny stocks rarely move more than 100% at a time unless they are below $.10 in which case 200-300% is possible when they do decide to start spiking. Unfortunately stocks make defined moves and then retrace a specific amount.
When trading penny stocks or any type of asset for that matter, they all have a certain way that they move. These patterns repeat themselves constantly. If you know how this framework for price movement operates, you can figure out exactly where a stock should move towards and when it should pull back or continue it’s upward or downward move. While it doesn’t stop at the same prices 100% of the time, its more like 75% of the time which is more than enough of an edge to profit from this information. If a $.20 stock has a chance to move about 100% in a short period of a few minutes to a couple days, that means the highest the stock will go is $.40. Most of the time it won’t immediately go straight from one price to the next. It will move from $.20 to $.28 and then pull back to $.22 before moving to $.33 and then pulling back to $.28, and then moving to $.38 before going to $.35 and then finally hitting hitting $.40 before dropping back to $.30 and then $.20 and then $.01 (yes penny stocks are pieces of worthless garbage and do this all the time which is why investing in them is so foolish.)
If you only take a $250 position of a $.20 this only yields a 1250 share position. Considering your unlikely to get the full 100% unless you are very lucky (and luck isn’t part of earning consistent profits when trading penny stocks) then you probably will only get about 20%-40% of the 100% price move. This means you have the potential to profit between $.04 – $.09 per share. $.04 x 1250 shares is only a $50 profit but then you have to subtract commissions which are between $10 and $20 per trade, which leaves a $30 or $40 profit. For a $.09 you would be left with a profit of $112 less ($10 to $20 in commission) which leaves $90 – 100. Profitable trades in the penny stock market don’t happen often. It’s not an every day occurrence that you will capture a 25-50% profit, but instead more like 4-8 times per month.
If your plan is to turn $250 into a million or even just $250 into $10,000 then plan on spending the next 30 years trying to do this. It’s not going to happen… Now if you take for instance a $3,000 position you will be able to purchase 15000 shares. $.04 x 15,000 is a $600 less ($10 to $20 in commissions). $.09 x 15000 = $1350 profit. This is on just a $3,000 position which really isn’t much at all in terms of trading although it might seem like a lot if you are poor or work a slave labor type job for the man. Scale this position up to whatever amount you are comfortable with and you can find out your average profit.
Being successful in the market requires thinking outside the box. You should not think linear manor anymore. 2+2 does not equal 4 it equals 22 when it comes to trading penny stocks. You must start thinking about the market this way if you want a shot at trading penny stocks for huge profits!
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