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Dreaming of day trading? Penny stocks is a fast-growing niche investing market that is literally turning pennies into thousands (or hundreds of thousands) of dollars.
To be fair, penny stocks aren’t going to make you an overnight millionaire. BUT — they’re pretty much the next best thing. Here’s what you need to know:
By definition, penny stocks refer to any securities trading for $5 or less per share. These are usually from companies that are new (or relatively new), have a smaller market capitalization, and don’t have the established track record of other successful businesses, which could make investors hesitant. But, we’re not investors, we are day traders.
That’s exactly what makes them so alluring to day traders.
They’re rock bottom cheap, which makes them perfect for smaller accounts. Plus, these stocks may see a 100% run or greater in a single day!
On the downside, the penny stock market can be quite volatile, so you must know exactly how to trade them. Before you risk any real money, it’s essential to understand the ins and outs of trading penny stocks and understand how and when to trade them.
Here’s the thing: not all penny stocks are created equal. The name itself is a bit of a misnomer, since stock prices can reach up to $5.00 per share. For beginners, it’s important to start on the right foot and avoid making easy first-time mistakes.
For starters, let’s look at the four tiers of penny stocks and which ones to stay away from:
Tier 1: These penny stocks are fully legit and are listed on major stock exchanges like NYSE and NASDAQ. They’re usually priced under $5.00 but may be slightly more. Because they’re listed on major exchanges, the companies are held to the same financial standards as larger corporations, so there’s greater transparency into the financial aspect.
Tier 2: These are the stocks that trade for between 1 cent and $5. In case you didn’t know, it’s possible for shares to be traded for fractions of a penny (more on that later). These stocks are commonly listed on major exchanges, which add to their legitimacy.
Tier 3: These are also called sub-penny stocks, which means shares can trade for fractions of a penny. These penny stocks aren’t listed on the NYSE or NASDAQ, so they’re not subjected to the strict financial requirements of other major exchanges. I advise you to steer clear of them.
Tier 4: Also called Triple Zero Stocks, these stocks are priced with 3 zeroes. They’re often used for manipulation and do little to benefit anyone other than the person who first bought them. Avoid these like the plague.
The bottom line is this: you can absolutely make a living from trading penny stocks. This niche is highly volatile and there’s never any guarantee (but that’s pretty much the story of investing, right?), but we’re not investing in them, we simply just want to trade them and catch a percentage of the move they make.
The key is to find big percentage gainers of the day, and trade them accordingly.
I teach this exact strategy in my Full Time Day Trader course. Check it out today!