How to Buy Penny Stocks
Before you buy penny stocks you need to understand what you are getting yourself into. Many brokers will not let you purchase a penny stock with your account or the fees would be so high that it would be it an inequitable trade. Therefore, you need to select the proper broker before you start trading. Brokers like Ameritrade and Etrade are recommended for trading penny stocks.
The next thing you need to understand is when to buy a penny stock. You always want to buy before a promotion starts. This is when the largest gains can be made. Most of the time, when a free penny stock newsletter puts out an alert it is already too late. The experienced traders are selling to the free newsletter members and taking their profit.
A popular saying is buy the dips and sell the rips. This means, look for intraday opportunities when the stock has fallen, but selling pressure has ended. Then sell it when the price corrects and pops up. Be careful, especially if the transfer agent is gagged or if the outstanding shares has not already been maxed out.
Another popular strategy is to buy what is hot on the big boards. If gold is hot, then look in the mining sector for gold penny stocks. Familiarize yourself with the different stocks and then watch for press releases. That way you will have already completed your due diligence and are ready to buy when the opportunity presents itself. You should also look for natural disasters or companies that would benefit from a tragedy. For example, medical companies would benefit from a new strain of flu, oil spill and green companies will benefit from an oil spill, and construction and disaster relief companies will benefit from a hurricane. These are oftentimes the most explosive plays and they can run for several weeks. Even if there is not any paid promotion, you can expect some of the penny stock newsletters to jump aboard and start promoting them for free.
Another one of my favorite strategies is to buy unexpected positive news and sell expected positive news. If the market already knows what is coming, shareholders will sell as soon as a press release comes out, but if out of the blue a company announces a divided, forward share split, FDA Approval, or multi-million dollar contract you should expect the share price to rise as momentum traders begin to buy.
Be sure to have a good news streamer will an audible tone as your alert. I prefer to use EquityFeed’s Trading Platform and integrate it with Ameritrade for fast order routing. As your experience grows, you should be able to analyze a press release in under ten seconds and have an order placed within the next ten seconds so you get filled before the other momentum traders start buying.