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Penny Stock Tips the Pros Use

Penny stock trading involves the polar opposites of the trading world; extreme risk couched with substantial profit potential. How do you mitigate your risk exposure and stay on the profit side of the equation? You can start by following these pro tips that subscribers of Penny Trader and OTCPicks.com have used for years:

MANAGE YOUR RISK

Recent events have shown that effective risk management is a trick that not even the largest institutional traders have mastered. The irrational fear of having a losing trade is a phobia that afflicts many penny stock traders. Realistic traders understand that not every trade will be a winner. The key trick is to recognize your losers quickly and cut those stocks loose. Seasoned penny stock traders employ stop-loss systems to minimize their overall risk.

WATCH THE MARKET MAKER

Penny stock traders notoriously spin conspiracy theories relating to the activities of market makers. Many of these theories border on the insane, however, there is a kernel of truth to this line of thinking. Smart penny stock traders watch the price action for telltale signs that the market maker is poised to take the stock one way or the other. The ability to decipher these situations is a trick that can potentially yield obscene profits.

DON’T BE LONG ONLY

The vast majority of penny stock players are long only traders. This means that they only buy penny stocks, and they never short them. Some mistakenly think shorting stocks is unpatriotic, or even evil. There are situations that dictate going long a stock, and there are situations that portend a stock’s decline. Only playing one side of the equation greatly limits your opportunities. Taking advantage of short opportunities is an important trick for a good penny stock trader to have within their routine.

LISTEN TO THE CONFERENCE CALLS

The vast majority of losing penny stock traders do not follow the news and filings of the stocks they trade. Decent penny stock traders read the transcripts of company conference calls. Superior traders use the trick of finding the archived conference call and actually listening to it as opposed to relying upon the transcript. Hearing the CEO’s and other top executives’ voices often yields valuable insights. Actually listening to conference calls is time consuming, but this trick often can serve to either prevent a loss or maximize a gain.

BE A CONTRARIAN

Many penny stock traders go with the flow and follow the herd into crowded trades.  Seeing that the majority of penny stock traders are losers, logic dictates that one would want to go against the crowd. Learning to be contrarian is a penny stock trick that puts you in the minority — which most often represents the smart side of the trade. Learn to identify the signals of a crowded trade. These become evident when all of the so called pundits are touting a given stock and everyone thinks it is a “no-lose proposition.” Once you have identified this situation, go against the crowd.

USE THE RIGHT BROKER

When trading penny stocks, a good trick is to learn how not to be tricked by your broker.  Fees and commissions charged by brokers can be complex and confusing.  Some brokers charge an outrageous per-share trading fee, which translates to huge commissions for penny stock traders. Many pay these commissions unaware that less expensive alternatives exist. Check out this penny stock broker list at OTCPicks.com.

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