Last updated: 26 January 2017
People often ask us how to trade penny stocks. The answer is simple.
Penny stocks can be extremely profitable, but also risky if you are not disciplined. It can be challenging finding the right stocks to buy, and when to buy them.
Fortunately, the Growth Penny Stocks team takes the guess work out of navigating the markets but providing timely research, analysis and stock picks.
Our free list of penny stocks can be very rewarding if you learn to trade penny stocks the right way. This requires some discipline, a little work, and a lot of patience – waiting for the right penny stocks to buy is very important.
To start with, you need a good online discount stock broker to buy stocks online. It is important you find the right broker that suits your needs.
Once you have set up an account with a broker and have funded your account, your are ready to go.
Stocks are bought and sold electronically using your broker’s trading portal which can either be web-based or a standalone platform. There is generally no need to call your broker to place an order.
Once you have decided which stocks to buy, you place your order using either a limit order or a market order. Put simply, a market order is the price at which the market (other traders) has priced the stock.
A limit order is a price in which you desire to buy the stock at.
Therefore, market orders will always execute (or fill), while limit orders may not necessarily fill if the stock price does not match your desired buy price.
Once an order has been placed and filled, the stock may move up or down, resulting in an unrealized profit or loss in your broker account. You can monitor your profit or loss in real time.
After the stock has reached your target price, or desired selling price, you will place a sell order – which is the same process as a buy order. Now you have realized gains on your trade.
However if the stock fails to move higher, and goes lower, your desired selling price will not be reached. This is where it is important to have discipline as a penny stock trader. It is critical that you manage your risk, and cut your losses if a trade goes against you.
To protect yourself, you may place a “stop-loss” order with your electronic broker. This means that if the stock goes down, it will automatically be sold at a price lower than your purchase price, resulting in a loss. The purpose of a stop-loss order is to prevent further losses if the stock continues to fall.
Cutting your losses early is one of the golden rules in investing. A small loss is manageable (and part of the game), while a very big loss can wipe out your trading account.
As a rule of thumb, you should never lose more than 10-15% on any one trade. This will allow you to “fight another day”. And with our penny stock picks that can gain 100%+, a small loss is just a blip on the radar.
It is important you understand how to trade penny stocks in both bull and bear markets. Growth Penny Stocks teach the basics of penny stock trading through our penny stocks for dummies section and giving members the top penny stocks to watch, as well as help you trade successfully in the markets.