For traders who aren’t able to invest in Amazon or Google, penny stocks are a great alternative, as they are companies worth less than $5 per share. That’s why penny stocks, often associated with a small investment and the potential for large profits, are increasingly attractive to retail traders looking for ways to diversify their portfolios with limited capital.
While penny stocks have great attributes and can turn a small sum of money into a large pile of it, these types of stock is also very risky, which means they aren’t for every trader. So, before you start trading penny stocks, you have to understand what they are and the risks involved. Only then can you decide if they are a good investment vehicle for your trading strategy.
If you want to make money trading penny stocks, like the successful penny stock trader Tim Sykes, you have to be well prepared, so we’ve gathered a few tips that will help you better trade penny stocks.
Improve your financial knowledge
Beyond improving your financial literacy, you really have to learn how the markets and trading work, so then you can make every financial and trading decision in full possession of the facts. Start by analyzing your level of required knowledge to determine how much you will have to learn before you start trading. There are many ways you can learn about trading – read books, listen to podcasts, take a trading course, watch videos, etc.
Also Read: Forex Trading for Beginners in 2021
Create a trading plan
Preparation is one of the most important aspects of trading penny stocks (and any kind of financial asset for that matter). Creating and following a trading plan will help you map out your trading strategies and describe step by step the way you will analyze the markets, choose a company, open and close a trading position, as well as how you’ll manage risks. A trading plan will also help you find the best ways to do your research according to your trading style.
Monitor penny stocks
Once you determine your trader profile and decide which kind of trading style and strategy you’re going to use to trade penny stocks, you will need to monitor penny stocks to stay on top of trading opportunities. To do so, the best way is to use a stock screen to create a stock watchlist with all the companies that fit your trading criteria. With your watchlist set up, you’ll have the right information on hand to make your decisions.
Keep a trading journal
A trading journal is a great tool for traders to track their positions and analyze their performance to spot aspects of their trading that need to be improved. Keeping a thorough trading journal with details that go beyond obvious information stated on your broker’s statement will really help you learn from your mistakes and improve your trading results.
A last word
One of the biggest mistakes when trading penny stocks is to have the wrong mentality and let your emotions guide your trading. Don’t be afraid of losing money, because you have to accept that you can be wrong and that you cannot make a profit every time. Always follow your trading plan to avoid your feelings and emotions getting in the way of your trading. In a word – adopt the right mentality to be successful!