Day Trading Penny Stocks – 3 Key Factors
For some, finding the best day trading penny stocks can be a bit of a nightmare. Perhaps you’re one of those people who sits there, hands sweating, wondering if a particular penny stock is ready to take off or if this is another failure waiting to happen.
Day trading penny stocks is a fairly simply process. You buy penny stocks and then you sell them without holding the stocks for a lengthy period of time. It’s not the same as penny stock investing, which I’m not a huge fan of overall anyway. Penny stock day trading is where it’s at.
Finding good, hot penny stock picks isn’t really as complicated as we’re lead to believe. In fact, I’d estimate that a majority of the time people pick the wrong penny stock at the wrong time and don’t get the best online penny stock trading experience because they simply ignored a few key factors. Sometimes the best penny stock for trading isn’t even being touted much. One other thing that will kill you is stock broker fees and games. All your hard can be for nothing if you have the wrong broker. Take a look at a penny stock broker review we wrote up about one of the good brokers to use.
Day Trading Penny Stocks Factor One: Volume
No matter what level you’re playing on, the stock you trade must, I mean must, support your action. There’s no point in buying into a stock only to be stuck. Sure, it went up 100%, but now you can’t get out, so you’re screwed. Successfully day trading penny stocks isn’t just about the action, it’s mostly about the selection of stocks you pick.
As a rule of thumb, don’t get involved with any penny stock that isn’t liquid enough for your planned activity. The easiest way to know this is to look at the average daily volume of the stock. If you’re going to buy more than 2% of the average daily volume, it might be a good idea to pass the opportunity up.
For example, let’s say you plan on eventually owning 100,000 shares of a penny stock, but the average daily volume is 1,000,000. Is this a good idea? Of course not. You’re dipping into 10% of the volume, which means you’ll have a rough time moving in and out.
Day Trading Penny Stocks Factor Two: Activity
If a stock isn’t moving a lot, it isn’t worth much. Sure, stock for Slow Tiger, Inc (made up name of course) might be at 10 cents a share today and poised to rise some day, but do you really want your capital tied up for days, weeks, or months? No. Day trading penny stocks is about pure, unadulterated volatility.
To get the best online stock trading results, you need to look for penny stocks that have price movement. For example, a stock that sits at $1 for weeks does you know good. But one that trades at varied rates throughout the day or that is subject to swings can be golden if you play it right.
Day Trading Penny Stocks Factor Three: Price Range
It’s all about scalping when you get down to it. You need a respectable price range to make money. Without it, your day trading penny stocks experience will be a poor one. Trust me. When I started out, I didn’t think about price range and it costed me dearly. If you don’t have optimal stock price range, then nothing else really matters much.
For example, a penny stock might have tons of volume and lots of price activity, but if all it’s doing is going from $1 to $1.02, then you will have trouble making money.
I don’t really think there’s a golden rule for price range since the range at which you’ll make money depends on your trading level. For example, a guy buying 100 shares at $1 a share needs a much higher range than a guy buying 10,000 shares. If you’re going to be successful at day trading penny stocks, you’re just going to have to customize a routine that works best for you. The key is getting started with as few mistakes as possible.
So let’s assume you can buy 1,000 shares of a stock currently selling at $1 per share and that your in/out commission tally will run $15. Every penny of price change to the positive equates to $10 profit, so you need 1.5 cents to break even. Of course, there’s also the spread. If you’re looking at a stock where the volume is 100,000 daily and the price jumps around or is subject to a swing, you’d need to see at least a 10-cent change, but ideally, you’d like to see a 25-cent change or greater.
That’s another lesson. Don’t try to thread the needle. There are many, many penny stock trading opportunities out there. In the above example, I’d pass on anything that was too close for comfort, which is why I said you wanted at least a 25-cent change. Sure, you could load up and try to score on single penny changes, but just remember that it goes the other way too. If you’re not ready to start day trading penny stocks yet, check out some more articles here.
