Advice When Penny Stock Trading

Trading in penny stocks brings unique opportunities as well as unique problems.

Price Averaging And Penny Stock Trading

Price averaging is a good penny stock trading tip. It simple means buying more of a stock as the price falls. This in turn lowers the average price that you pay for your total holding.

So if you hold 10000 shares that you purchased a $1 and the price drops to $0.8 you could buy another 10000 and then have 20000 shares at an average price of $0.9.

As long as the price subsequently rises above your initial purchase price you will achieve a higher profit overall. Of course, the price could continue to head down so be careful not to chase a stock all the way down.

Set A Limit On Your Losses

Set a limit on what you are prepared to lose on any trade to around 20% and as soon as your limit is reached, sell the stock and move on to your next target. Even if you believe a stock has sound fundamentals sell at your limit. You can always buy the stock again, likely at a lower price in a few days.

One of the most important things in penny stock trading is to set rules that you are comfortable with and then sticking to them.

Use Limit Orders

I recommend you use limit orders when penny stock trading due to the often limited availability and liquidity of penny stocks.

A penny stock market maker can sell you the stock at a higher price than you want them or a lower price than you are willing to sell for. Placing a limit order protects yourself.

This is particularly important if a stock has very little trading volume. There may be few market makers for the stock lowering competition and the market maker will have time to make a value judgement on your trade and adjust their price to their advantage.

Remember, you may well be dealing in a large number of shares (say, 50000) so just a $0.10 difference in the fill price can mean the difference between a decent profit and a substantial loss.