Do I trade Penny Stocks? Truth be told, I trade ANY thing that moves. Like all professional traders, we have what we call our “bread and butter”. I find that Large Caps along with ETS always give me the volatility I need in the least amount of time. Penny Stocks are excellent to trade accompanied by volatility.
When I first started trading, I started out with stocks that were $10 or less, but grater than .70. The “Sub-pennies” like .003 or .01, I would never touch. Who has time for that? Due to the cheapness of the stock, in order to make a decent profit, large blocks of shares were purchased. (If a stock was $5, let’s say I would buy 5,000, $25,000.00 worth of stock, that stock moves .30 (6%), I would make $1,500, however if it moved against me the same amount, my loss would be $1,500. However with Penny Stocks you have to have a particular risk/management strategy. As in, willing to loose .15 a share in order to make .30 or more. So for that same example, with risk management, I would only be willing to loose .15, which is $750. Making the Risk to Reward Ratio 2:1.
Large Caps, lets say a $50 Stock moved up the same 6% which is $53, a $3/share move- I buy 500 shares = $25,000.00 worth of stock. With my Risk management, if that stock moved $1.00 against me, I would loose $500, however if that stock moved in my favor I would make $1,500 making my risk to reward ratio 3:1. Understanding the movement of Large Caps, the risk is lower due to the amount it has to drop or rise in order to make an incremental difference. And knowing that makes them easier to trade while lowering your risk. Of course high probability trades are based off of support and resistance, which make success even more perceptible.
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