In the traditional investing world, penny stocks are looked upon with disdain. The pink sheets or OTC stocks, names thrown around with derision because of how penny stocks have always been looked at. Smaller cap companies were listed on actually pink-colored sheets back in the day and old school Wall Streeters looked the sheets and over-the-counter stocks as beneath them. Because of that, though, they have always had kind of an appeal for outsiders and mavericks.
Which is a great for day traders. Those labels fit day traders perfectly. Day traders by nature go against the grain and they are always searching for outliers. And volatility. Which you can get a ton of when you are trading penny stocks. Penny stocks are notorious for their volatility. The price goes up and down very often, due to fluctuations that can be discerned into a pattern. If you spend enough time looking at the screens.
Screen time is very, very important when you are trying to learn how to become a day trader. In the old days, logging screen time as a day trader meant putting some cold, hard cash into a brokerage account and trading it. No classes, no practice, no safety net. Just real, actual risk for your nest egg. Day traders in the late 1990s and early 2000s put their money on the line, took their lumps and learned on the job. Penny stocks were a way to make money for them, but they had lose money on penny stocks first, in order to find out what not to do.
That does not apply anymore. Today, you can use a day trading education site like Warrior Trading to get out into the world of day trading without actually risking money. You can take the online classes to understand strategies and techniques for finding the best penny stocks to trade. Then you can hang out in the chat room in order to understand how traders actually do it and talk about it on a day-to-day basis. And, best of all, you can spend time paper trading, which means getting into a simulated trading environment and trading virtual currency at the speed of the real market.
But before you do all that you want to be able to find penny stocks that are ripe for big gains. First off, what is a penny stock. It does not actually cost pennies. Penny stocks are generally thought of as companies that trade between $2 and $10 per share. That share price range can cover a whole range of companies, from fintech and biotech to mining concerns and low-level media companies. The range of business is huge. But the good thing is, you do not have to be an expert in those industries in order to trade the stocks. You just need to be able to look for patterns and jump on the trades early and ride them to the right result.
Profit/loss ratio is important and so is overall risk management. You can’t be right on every single trade, so you need to be prepared to be wrong about 40% of the time. Just try to make the profits at least double the losses so that the 60% success rate will leave you in the black.