How much money can be made trading Penny Stocks?

[Curtis Davis]

[Steve Walters]

People have been flocking to penny stocks in recent years because they see it as an easy way to make outsized gains from trading. That leads many new investors to wonder just how much money they can make trading penny stocks. As with most things there isn’t one correct answer. An educated and experienced investor might make huge sums with penny stocks. A new trader could get lucky and make outsized gains when they start trading penny stocks. Or both traders could blow up their accounts, losing everything they began with and more. The reality will lie somewhere in between for most investors. Small gains or modest losses are common because you’re dealing with low value stocks that don’t often move much. Even if you have $500 invested in a penny stock and it doubles or triples you haven’t made all that much money, although you do have an excellent return in percentage terms. If making money with penny stock is of interest to you there are risk management strategies you can use to help you avoid losing your shirt in this often volatile market. Once you begin looking at the penny stock market you’ll soon find the first challenge, which is locating stocks that are worth your time and money. Undervalued stocks are never easy to find and if you’re dealing with over the counter (OTC) stocks it becomes even more difficult to locate the stock that is undervalued, but still has a good outlook and strong financial numbers. One method for locating these undervalued penny stocks is by using a stock screener. These software programs will filter out stocks that meet criteria you’ve set, such as price performance, volatility, or some earnings criteria. Three criteria often used to identify potentially profitable penny stocks are: Rising Volume – If the number of shares being traded is increasing this is usually a good sign as it means people are accumulating the stock. It also increases liquidity, making it easier for you to buy and sell the stock. The Float – This refers to the number of outstanding shares available for trade. If you can find stocks with a float less than 100 million shares that’s a good place to start. The reason is that the limited number of shares makes the stock “rare” and when buying interest picks up the stock will rise much faster. News – While new traders are often cautioned not to trade the news, in the case of penny stocks the news is often the primary catalyst for strong moves. Any positive news for the company can push shares higher, and because these are penny stocks the moves can often be quite strong.

Trading Penny Stocks to Make Money

The risk inherent in penny stocks means you can potentially make a lot of money, but it also means you could lose a lot of money. Penny stocks are best for those able to stomach a good deal of risk, and who are able to quickly analyze developing moves in stock prices. Indecisiveness is not going to help you make money trading penny stocks but increasing your trading skills and knowledge will.

[linda adkins]

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