Stock Trading Tips

If you are a trader that is hoping to overcome the challenges of OTC penny stocks, then these tips may help you to get better results.

Study Trading Volume

Volume is a good indicator of the liquidity of the stock that you want to trade. Liquidity is one area where people often struggle with OTC penny stocks. You can often encounter large bid-ask spreads, and traders are advised to use limited orders which will specify buy or sell prices that could be a challenge. Traders are advised to stick to limited orders, and not use market orders. Take into account the spread versus the value of the share as well - a spread that would seem perfectly reasonable on a top flight share that sells for $70 would not be reasonable if the spread requires the asking price of the share to gain 100% in order to make it worth selling. Remember that there are other fees for trading as well, sometimes. Buying a stock is no good if you find yourself unable to sell it because of the spread. Higher trading volumes will make it a little easier for you to sell.

Volume is a great indicator for a number of things. If volume is increasing, and the price is rising, then this is a good sign. If price increases occur with low volume, then you may want to tread carefully as the price may be in for a near-term reversal. They could be cheap stocks for a reason. Watch to see where the price settles, and look for shares that do have decent trading volume to reduce your overall exposure to risk.

Arm yourself with information

One of the main challenges when it comes to trading penny stocks is that it is hard to get data on the companies that you want to trade. A lot of the information that is out there about penny stocks is simply promotion and PR. The bigger markets have more analysis and hard data, but with penny stocks there are so many companies that it is hard to get true insight into the companies. You can learn a lot with a key stock screener service - something like the data offered on the OTC Markets site, which will help you to get information about volume, income development and more. The site will give you news on the stocks that are out there.

Build a Good Trading Strategy

When you exchange any stock, you need to understand that there is an element of gambling to what you are doing. There is one technique, called force exchanging, which dealers use - they will stay with a stock while the volume is expanding, but then when pointers start to shift they will offer out parts of their position. This system helps traders to ride the volatility of movement that can happen with penny stocks.  Force empowerment can help brokers to take advantage of market instability, and can boost your good fortune. Buying a stock when it is at a lower level, and the selling when there is some enthusiasm for it and it enjoys a brief surge. Buying and holding is rarely worthwhile with penny stocks because it is so rare for them to make it over the dollar level - but they do bounce between, say, 20 cents and 80 cents on a regular basis and it is possible to take advantage of that to make money.

In Summary

As a new investor, you need to do your due diligence and find strategies that will work for the volatility of the market. Good budget control is important, and you need to understand that many companies will struggle and even fail. Do not invest money that you cannot afford to lose, and understand that there is always an element of risk with any form of trading, penny stocks or otherwise.

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