Is swing trading penny stocks a good trading strategy? This is a question traders may be asking themselves. There may be a couple reasons that swing trading penny stock is necessary.
Penny stocks are attractive to traders, especially new traders. Penny stocks are cheap. Hence their appeal. When you’re learning how to invest in the stock market with little money this strategy seems appealing.
However, the world of penny stock trading is risky. It’s fraught with manipulators and pumpers that are looking to take advantage of traders; especially the new ones.
SWING TRADING PENNY STOCKS
Swing trading penny stocks is going to require a great strategy and good penny stocks. Penny stocks, according to the SEC, are stocks that are $5 and under.
Since a lot of these stocks trade for pennies, they’re not found on major exchanges like the New York Stock Exchange. The major exchanges delist stocks that go under a dollar. You have to go pink sheet or OTC to trade them.
An issue you may find when trading penny stocks is the large bid ask spread. The bid ask spread is basically telling you the highest price a buyer is willing to go and the lowest a seller is willing to sell.
The larger the spread is, the less liquid the stock. When a stock isn’t liquid, it’s not moving as well. What this is telling you is that this particular stock isn’t really being traded and has no volume.
Large bid ask spreads make market orders fill at prices that you don’t necessarily want. Sometimes you may have to swing trade penny stocks without wanting to. Read our post on the difference between market order and limit order.
SWING TRADING PENNY STOCKS – WHERE CAN I FIND SAFE PENNY STOCKS TO TRADE?
Any of the penny stock trading strategies you should employ should revolve around finding good penny stocks. Since penny stocks trade so cheaply you can buy large quantities of them.
If you’re swing trading penny stocks then looking at the stocks that trade above a dollar may be the safest bet to get a profit. Find a place you trust if you’re looking for penny stock recommendations.
Never ever take someone’s word about a stock. Always do your own research before ever placing a trade. Just because someone is promising a huge return doesn’t mean its going to happen.
If a story sounds too good to be true, it usually is. Look for a respectable trading company if you’re looking for watch lists. Newsletters and lists are the breeding grounds of manipulators and pumpers.
You can always subscribe to the Bullish Bears daily watch lists sent out each night. There’s a good mix of stocks under $5 as well as over $5. They’re stocks that are about to break out of patterns. As a result, this makes for good set ups to trade.
SWING TRADING PENNY STOCKS – WATCH OUT FOR THE PUMP AND DUMP
Did you know that the penny stock sector has more selling than buying happening. This is because there are people who are paid by companies to pump their stocks.
These manipulators aren’t making money by trading the stocks they’re trying to get you to buy. Instead they make their money from being paid to get you to place the trade.
That’s not to say you can’t make money from a pump and dump scheme. In fact, if you’re well aware of what it is you can take advantage. A typical pump and dump is usually a 2 to 3 day pump followed by a dump.
This isn’t the case 100% of the time, although, it is the most common pattern. What is swing trading? It’s holding a stock overnight up to a couple weeks.
If you’re swing trading penny stocks that are clear pump and dumps, then holding overnight may be possible. However, it’s also super risky. Set a stop loss so if it does dump, you’re not out a lot of money.
SWING TRADING PENNY STOCKS – TRADE THE PATTERNS
Swing trading penny stocks is going to require patterns. The charts don’t lie. If someone is telling you that a stock or sector doesn’t follow the charts, then run the other way. Especially if you don’t have proper stock market training.
The charts confirm pump and dumps. Head and shoulders patterns are a popular pattern to look for. Why? Because it’s known as the F you pattern. Which is what happens if you get caught at the end of it’s formation.
The importance of patterns, volume and the bid ask spread is going to your saving grace when swing trading penny stocks. Only trade the best set ups. Don’t listen to the advice of other people without doing your due diligence.
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