Are you ready to trade penny stocks? If you do, then let’s get started. Before you can buy and sell penny stocks, you need to open an account with a stock broker. I recommend using Zecco. They offer cheap commissions for trading penny stocks.

Click here to visit Zecco.

Follow Your Rules

Penny stocks are risky and if you want long term success trading penny stock, you should follow your trading rules all the time.

Stop Loss

You should set stop loss for every penny stock you trade. I recommend to set somewhere around 20% so in case you are wrong on a stock, you still have money to invest for the next one. Also, you don’t want to set your stop loss too tight as a penny stock can easily go down and hit your stop loss frequently. You don’t want to get stop out only to watch it go back up after you stop loss is hit.

Use Limit And Stop Loss Orders

You should always use stop loss orders and limit orders to buy and sell stocks. If you want to buy a stock at $0.25, you want to set the limit order so that you can get it for that price. The reason you don’t want to buy with market order is a penny stock can move up quickly and by the time you execute your order, you may buy it for $0.3 or even higher. This is not what you wanted to see.

Make your own decisions

You should make your own decisions whenever you buy or sell a penny stock. You should not listen to gurus or anybody else. You can get trading ideas from them, but you should then do your own research and trade independently.

Don’t chase a stock

Never try to chase a stock. If a penny stock jump 100% or more in a day, don’t chase it, let it go. True, the penny stock may continue to go up, but there is a good chance that it will go back down. Remember, there are always better penny stocks out there that you can trade. The penny stock will never run away.

Learn from your mistake

If you make a mistake once, try not to make the same mistake twice. Instead, learn from it.

Keep a trading journal

Keep a trading journal with all your buys and sells and study them. You should also study the market everyday and try to learn how it acts. The more you know, the better you trade.

Do not trade money for emergency use

Never trade with the money that you need for emergency use. If you need the money for retirement, don’t trade it. If you need the money for your kids to go to college, don’t trade it. If you need the money to pay your bills, don’t trade it. You can only trade with the money you can afford to lose.

Buy Trending Stocks

One strategy to use to trade penny stock is to buy low and sell high. You can look for trends of a penny stock and see if it is trending higher continuously. If it is, then buy it. Often times, a penny stock will form some kind of trend and it can last for a long time. You want to jump into these trends early so you can buy it at a low price and sell for a higher price at a later time. You should learn how to look at their charts and see if you can recognize winning patterns. If you are not familiar with technical analysis, I recommend you to study that and apply it to penny stock charts.

Buy ing on dips

Another strategy to use is buying on dip. A dip is when a stock drop and then starts to recover. A penny stock could drop or drag down by other similar penny stocks in the same industry. If a stock went down because of news unrelated to itself, there is a good chance that it will go back up. Hence, you can buy the stock on dip and get a good profit when the stock go up to its normal price.

Buy Low Market Caps

You can also buy low market caps companies. A company could be low caps for many reasons. One of the reasons is that the company is new or it is not known to a lot of investors. You can pick up quality penny stock companies in their early stage and when it starts to attract large investor interest, you will see your shares appreciated. You can then sell for a profit or continue to hold depends on the market condition. However, keep in mind this is a risky approach if you don’t do it right. The following conditions must be met in order for you to buy these companies.

1. You must research the company thoroughly and make sure the products or services it offers has market potential.
2. You should not blindly select any company with low caps and invest in it.
3. You should know the industry very well and hence you judge whether or not their products are hot.

Buy Stocks You Know

You can buy penny stocks in an industry where you are good at or know a lot about. For example, if you are IT guy, you may want to look for technology related stocks. If you are an accounting person, you may want to look for bank stocks or financial stocks. This way you can buy stocks with lower risk because you know what they are selling and know the potential of their products and services. If you buy stocks in an industry where you know nothing about, you will have to do a lot more research and hence spend a lot more time. Also, it is easier for you to pick penny stock winners in an industry that you know a lot about.

Buy High Volume Penny Stocks

You can buy penny stocks with high volume. These penny stocks are generally safer than the ones with low volume because they are a little harder for one investor to manipulate the stock price. Also, usually high volume stock means there are more investors interested in buying the stock so it is a good thing because you can buy and sell them more easily. If you buy a penny stock with low volume, sometimes it is hard to find a buyer or a seller at the price you set, so you are force to raise the price when you buy and lower the price when you want to sell which is something you don’t want to see.

There is one thing you will absolutely have to learn in order to make a fortune with penny stocks.  There is something required of you, and without it I promise you will not be successful.

You must learn to listen your brain, not your emotions!

Let me give you an example:

You decide to buy a particular stock, and within 24 hours, you’re up 50%.    Great!

Now comes the hard part.  You’re up 50% and considering selling, but your emotions are telling you “Wait, what if it goes up to 100% tomorrow?  If I sell out now, I’ll miss out on even more profits!”

You have 2 options.

Option #1:  Listen to your emotions, hold on to it, and pray it continues to go up.

Option #2:  Listen to your brain, call it a win, and sell for a 50% profit.

Which option sounds the best to you?   You would not believe how many people pick option #1, and end up losing everything.

I’ve seen it a thousand times, even from my current members.

Example:

I recommend a stock through my daily alert email, and it goes up by 50% within a  few days.    Then I make it clear that this is a great win for us and it’s time to move on, and what happens?

Ugg…

As a penny stock investor, you have to know when to walk away with a profit and be happy with a nice win.  This is the biggest problem I see with people trying to make money trading penny stocks.

You’d be amazed at the number of emails I get saying “I sold the stock you recommended at 60% profits, but I noticed it went all the way up to 85% just a few hours later!   If only I would have waited!”

Can you believe this mentality? Complaining about a 60% profit?  It’s crazy!

I’ve learned to just laugh at these emails.    Look, there’s always a chance that you could sell out a little earlier than what might be considered ‘ideal’, but the bottom line is we’re going for substantial profits, not substantial losses!

I guarantee that it’s much easier for penny stocks to go down after a huge rally, than it is for them to continue climbing up.

You have to learn when to walk away.

The sooner you learn this, the more successful you will be with penny stocks.   If you’re interested in joining our weekly alert service, and you think that you can use your brain rather than your emotions, you can sign up today by visiting:

This is a guest post by James Connelly from Penny Stock Prophet.