Penny stocks are the shares of stocks that trade for $5 or less. These are the stocks of new small companies that can grow into big business in the future. Thus, if you have a little amount of money to invest, you can start investing in penny stocks. To help you gain huge profit in penny stocks, here you can learn how to trade penny stocks.
Trade Penny Stocks
If you want to try penny stocks for the first time, you better start with paper trading or simulated trading. These two allow you to practice without risking any actual money.
You can keep track of that fake money, make imaginary trades and learn which tactics work for you. Besides, you can also sort of which penny stocks that can bring you the greatest profits. You also do not need to worry about losing the trades, since it is not your real money.
You need to consistently do this paper trade until you get profits on most of your trades.
Tools and Tips to Trade Penny Stocks
There are various simple and interesting online tools that can help you improve your trading. The example of those tools is Relative Strength Index (RSI).
Other than, RSI you can find hundreds of other technical analyses that help your trade. Here are the three basic rules that have been tried and proven to help penny stock traders.
Be Careful of Confirmation Bias
Confirmation bias is the tendency to interpret information in such a way to support your pre-existing beliefs. This mistake is commonly done by a human being. But, remember, in order to see what you want to see, you have to pay a huge cost.
Use Limit Orders
Other than market orders, you need to always use limit orders in trading penny stocks. Your purchase on this penny stock can significantly affect the price of the stocks due to its thinly traded nature.
In other words, your buy can temporarily increase the price, before it drops back down once you fill the purchase.
Use Stop Loss Orders
Stop-loss order is the most important tip in trading penny stocks. It allows you to sell the shares anytime the price drop at a certain point. If you consistently limit your losses with stop-loss orders, but still open to the tremendous upside of penny stocks, then you can gain better overall trading results.