Penny stocks are inexpensive stocks that are issued by start-up businesses or companies facing bankruptcy. These stocks are usually traded on the Pink Sheets or the Over-the Counter Bulletin Board (OTCBB), while some of them are traded on the NASDAQ, NYSE and AMEX. Since the stocks have few shareholders, they are speculative and high-risk stocks, which are traded in frequently and might be hard to sell when you own them. Here are some tips on how to do the day trading on the penny stocks.
1. Stay away from penny stocks that you learned from unsolicited emails or those sold by offshore brokers. It is a common way for con artists to sell penny stocks to novice day traders.
2. Subscribe to website services that offer you real-time information on penny stocks. You need to pay for the tips, databases and advice.
3. Do research on the company that you are considering to invest in. Read business newspaper articles and perform Internet research on the owners of the company.
4. Figure out if there is a market for the product that the company is selling prior to your day trade of the stock.
5. Keep an eye on news and rumors, because these are the driving force on the penny stock movement. Online message boards, press releases and chat rooms are good places to gather such information. You need to pay close attention to how the stock behaves and responds to the rumors and street buzz.
6. Check out which stock expert investors such as Peter Lynch and Warren Buffett are trading with. You can find this information in the SEC’s EDGAR database.
7. Purchase software for penny stock trading. By doing so, you will be able to buy and sell penny stocks online at a cost and also receive intraday and historical charts to customize for your own use.
8. Find a online broker who is a specialist in penny stocks to place orders for you. Because trading in penny stock is speculative, the online brokers are required to obtain written confirmation from clients on the transactions. You can also get a document warning concerning the risks on day trading on penny stocks.
9. Pay attention to late-breaking news stories and make quick movement in a penny stock. Day traders often take full advantage of real-time financial news stories and decide which stock to buy, so they are able to trade “momentum” stocks, which are securities that have constantly show good returns during the previous year.
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