Day Trading on Penny Stocks Requires Determining Your Buy Point and Price Drops
With the rise and fall of many major stock indexes over recent years, many new investors are asking the same question, “Can I make money on penny stocks?” In the past, this type of share was thought to be destined for large cap and high end investors only. However, in recent years, many new shares have been created by savvy investors who know how to buy shares at a very low price and then find a way to get a profit when the market rises.
Penny shares are viewed as a high risk purchase due to their lower prices. Also, many new shares are created by firms who will not survive very long. These companies usually have poor financial ratios and poor growth potential. But, there are times when these companies burst in on the scene and create a substantial gain. There are other times when they’ll flop completely. For this reason, it’s extremely important that investors carefully analyze potential buying opportunities using the P/E ratio, price to book ratio, and other technical analysis tools.
Many people think that day trading is when you make money on penny stocks. This is not entirely accurate because there are several different types of trades including day traders, short-term investors, and long-term investors. All of these have different ways of investing and can have varying results. Some day traders will use technical analysis tools to detect trends, while other day traders may not have any use for technical analysis and choose to only execute standard trading strategies.
One of the most popular ways of trading shares is called day trading. With day trading, investors usually buy and sell a handful of shares quickly and within a matter of minutes. This type of trading tends to be very volatile and is very high risk. Many new investors who practice day trading are unable to make a consistent profit, and must instead devote their time to learning more complex trading strategies. The typical method for day traders is to do research on the rising and falling stock prices, learn about technical analysis techniques, and then execute quick and profitable trades with their selected shares.
There are also investors who do spot trades with small amounts of money. Spot trading allows an investor to purchase stocks that are already poised to go up in value. This allows the investor to buy the stocks at a low price and then trade them up before they begin to increase in price. Day trading shares requires the purchase of a large number of shares at a low price, usually less than 20 dollars each, in order to be successful.
Frequently, shares are sold by brokers or brokerage firms that do not have a very large number of shares listed on their books. These brokers have a large amount of inventory on hand and typically do not have enough shares to allow the full list of stocks to become available when needed. These brokers are more susceptible to wide-ranging price drops due to small volume increases. It is important that when using these services that the investor has a minimum purchase amount. The minimum requirements will depend on the volume of trades available with the broker.