I am fairly new to the day trading world. I have mainly been playing penny stocks. I was just wondering what kind of plays other people have been making, or maybe what is a good play for a newbie like myself Thanks, Red
Perhaps the best question to start with is are you making money trading the penny stocks? If so then why change? What to consider is the risks involved with penny stocks. First they are like a girl you take home from the bar, she may be with you that night but gone in the morning. The second is liquidity. Often times people will scoop up a million or so shares, run the stock up and dump it on the (m)asses and let it fall. Or if liquidity dries up then you will pay a huge spread to get out if you need to get out quickly. Finally, pennies should be the last part of a major move in stocks. So if gold stocks are hot the big mines move first, the second is the medium and finally the junk. So don't get caught in the tail end of a move holding too much long. Other than that, you have to a method that you are comfortable with that makes you money. Keep your commission costs down and focus on being profitable. And trade small. I would not put any more than 10% and preferably 5% of my money in any one idea. (except a basket like spy or qqq which is diversified).
Thanks for your reply trdrmac. I realize the risk of penny stocks. It's just that I don't see any other strategies that can make any money without starting out with lots of money. With penny stocks I can get a 10% gain very quickly. I am rambling. I guess the question is what is a good strategy with very low risk?
There is NO low risk strategy for trading stocks PERIOD. But you can manage your risk via diversification and discipline. First I would find a broker that charges very little commission. Think a penny per share. Next I would define what my trading strategy is. Are you doing this full time or part time? What is your personality? Do you want to sit at the computer 10 hours a day holding your bladder. Or do you want to be able to walk away? Finally, if you have to play cheap stocks do a screen on yahoo for ones that pay dividends. After the screen get a quote on each one under HISTORICAL PRICES and make sure the dividend is being paid. I say this because many screeners will turn up a yield on a company that has stopped paying the dividend. The reason I look for the dividend is that most companies can't fake a dividend payment. Find 10 of these in your price range. Here is one I own, just a 100 shares. PMID, they make beer and pay about 8% in divs. The stock has been in a channel from 2.25 to 2.50 since about November. Avoid a downtrending stock. Then buy at 2.30 or so and sell at 2.45 or so. If you are daytrading, buy on the bid and sell on the ask. (Just an example, don't use it on my recommendation alone) Assuming you have $10,000 I think it is more important to get your technique down than to TIE up all your capital. So you find your 10 stocks, buy 100 of each. You have $2500 tied up. When you are starting to make money then increase your size. Always pay cash, NO MARGIN. There are faster ways to make money, but look at Barron's report on hedge funds. These guys are supposed to be the master traders. Most of the returns are pitiful, just like most mutual funds. So the risk is that there are faster ways to lose money as well. When I quit my job and started trading full time I was a pig and a genius. Now I am a chicken and an idiot. Finally, there is a series of books by Justin Mamis "When to Buy, When to Sell and The Nature of Risk" I would highly recommend them at about $15 each it would be hard to do better. Hope this gives you some ideas and feel free to shoot your own back. I spend way too much time at this computer so these diversions are good at times.
"When I quit my job and started trading full time I was a pig and a genius. Now I am a chicken and an idiot." Love that line!
I did post how I was trading and how i adjusted my style, but it disapeared.....hummm must be big brother.....anyways, Its been fun dealing with some of you, the others, i hope you make the coin. Its time for me to get off this site, I have no reason to be on. This was by far the most active site for traders.....Im just bord with it. Good luck and if any of you come to chicago look me up, just talk to anyone that trades.....most know my handle....we will have a drink and hit our nightlife....its out of control.....babes are everywhere.