When trying to make money in the stock market, whether it be via an online brokerage account or your Roth IRA, you might think the best way is to find established and reputable companies, research them and make long-term investments in their business. But that can take years to pay off. It is not a viable route to financial freedom in the short term.
Trading penny stocks can be that route. Sure, it can be dangerous to trade penny stocks, if you jump into the game with no knowledge and no plan. Anything can go south if you try to undertake it with no trading. The same is trued when it comes to penny stocks.
First of all, how do you define penny stocks? Penny stocks are defined as any stock with a value of $5 or less per share. They don’t actually cost one penny. And they are not traded on the New York Stock Exchange. They are traded over the counter on so-called “pink sheets.”
Some people believe that penny stocks are actually illegal to trade and own, but nothing could be further from the truth. Penny stocks get a bad rap because of the low share price, but they are actually mainly companies that have hit some rough times and been de-listed from the traditional stock exchanges. There is plenty of legitimate opportunity to make money from penny stocks, since they are pretty volatile. Volatility is great for day traders.
Day traders make their money by buying and selling spiking stocks at the right time each day. Penny stocks, because of their low per-share value, are prone to spikes and dips during the day. Day traders can use certain strategies to take advantage of stocks that make big moves like that during a trading day.
But before you enter into trading penny stocks, it makes sense to know what you are doing. Take classes to learn the strategies that are likely to lead to success. Then get to practicing.
How do you practice trading penny stocks? By getting not paper trading. Paper trading consists of getting onto a virtual trading platform that mimics the real-time movements of the market and uses virtual currency. It is somewhat like a day trading video game. But the benefits are real. If you can prove yourself to be a profitable trader in a trading simulator, you can transfer those skills to the real stock market.
One of the benefits of starting out as a paper trader is that you can learn real risk management techniques in a virtual environment. In the old days, before paper trading, day traders had to get out into the real market and lose money in order to understand how not to lose money. Taking risks is important in trading as long those risks are managed and under control. The only way to get to that stage as a day trader is to practice.
Penny stocks may seem like gambling to some, but that is a myth. Linking up with a day trading education site like Warrior Trading can bring you on your way to day trading heaven. You just need to follow the lessons, practice in the trading simulator and spend time learning the ropes in a day trading chat room with other traders. Then you can trade your way to financial freedom.