By Anthony Chang:
Trading penny stocks can be really tempting for small-account investors, since most stock prices are cheap and can be easily bulls up to 10~150 percent returns. However, the most important element that can lead you to succeed in penny stock trading is the Volume. The two indicators I usually take consideration when trading penny stock are Volume and RSI. Especially, Volume is the more important element of the two. A high volume in a trading day means there is a sign, either the stock is about to break out or the opposite. Therefore, it can be a good sign to trade since volatility is the key to have a good return in profits. RSI is an affirmation of the price if it's being oversold or overbought too much.
Now you know when's a good time to trade. Let's talk about strategies. Here are my strategies for trading penny stocks:
1) No Chasing~!
REMEBER, do not chase to either long or short a stock because it's rising or falling. DO THE OPPOSITE! Trading stocks is a test of human psychology. Do the opposite what people will do. Long the stock when there's a irrational panic sell or short stock when there's a frantic buying.
2) Find the support and resistance~!
Trading stock requires patience in getting the best price u can possibly have. The best way is to analyze support and resistance of a stock. See what prices that people will stop buying or selling the stock.
3) SET A STOP LOSS
This is my technique. Again, trading stocks is a test of human psychology. Having a stop loss can help to alleviate stress in trading simply by knowing your exits. Also, penny stocks' prices may swing alot, so it's good to set a limit.
4) DON'T BE AFRAID
Again, Long the stock when there's a irrational panic sell and short the stock when there's a franatic buying. Do not be afraid!
I hope these stregies can help you succeeding in trading penny stocks, or even trading common stocks.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.