Penny stocks are very interesting when it comes to stock trading. Penny stocks are smaller companies out there that have a very low share price. This is usually because the company is still trying to grow. With this being said, usually these companies don't have that much in revenues rolling in. Usually, these companies will be witnessing more debt than anything else. They typically are taking out debt (loans) in order to facilitate growth. This is why they tend to be very risky when it comes to trading. If a company is currently operating on loans (debt), it's hard to determine the opportunity. This is why many people have lost lots of money in penny stocks. Lots of traders will buy a penny stock and hold onto it for a while. This increases the chances that the company can fall or rise. Some people have found the right penny stocks and have made a fortune. On the other hand, people have picked bad ones and see huge losses. This is why at Visionary Assets, we only like to day trade and swing trade penny stocks. With this being said, we are only holding onto the company for a short amount of time, managing risk in our opinion! Now there are a select few we may like long term, but that type of analysis we use will come in later blog posts.
So How do we day and swing trade them?
At Visionary Assets, we are all about technical analysis. Technical analysis means looking at stocks from a charting prospective. As you have seen in our previous posts, we use Think or Swim to chart our stocks. We will be going over charting later, but in our opinion we believe there is opportunity in penny stocks if you find appealing ones from technical analysis. There are many methods we use in charting, but this is an approach we take rather than just guessing or listening to other people. You will quickly find out that if you learn how to use technical analysis, it can make trading a lot more efficient.
How much do these stocks cost?
Many traders have different opinions when it comes to pricing. In our opinion, we believe any stocks that are $5.00/share or below are penny stocks. $5.00/share is pretty pricy if you are new to trading, that's why a lot of penny stock traders stick to the ones that are under $2.00/share.
Why do many people dislike Penny Stocks? Many people dislike penny stocks because they can be unpredictable. Since there isn't much information on many of these companies, they can simply vary tremendously in price. A lot of them are also not that liquid. What we mean by liquid is how easily they can be traded. If you look at volume on a penny stocks, a lot of them have low volume. If a stock has low volume, it makes it harder for the trader to buy and sell the shares. If not a lot of traders are trading the company, who will buy your shares? That's why we like to stick to penny stocks that have at least 1million in volume each day. This tells us that there is at least a market for the stock, and that people are willing to buy and sell at a solid pace.
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