Trading in high volume penny stocks let’s you make substantial trades without unduly impacting the stock price. Even small trades in low volume stocks can have an effect on the share price sometimes making it difficult to fulfill your order either at the price you want or even at all.

Remember also, that as volumes increase so does market maker participation increasing competition and narrowing price spreads.

The market makers will compete against each other to drive the prices they are willing to pay to buy stock up and the price they are willing to sell down.

This narrower spread makes it far easier you to turn a profit on trading high volume penny stocks.

Todd B.

We strongly recommend you use limit orders when penny stock trading due to the often limited availability and liquidity of penny stocks.

A penny stock market maker can sell you the stock at a higher price than you want them or a lower price than you are willing to sell for. Placing a limit order protects yourself.

This is particularly important if a stock has very little trading volume. There may be few market makers for the stock lowering competition and the market maker will have time to make a value judgment on your trade and adjust their price to their advantage.

Remember, you may well be dealing in a large number of shares (say, 50000) so just a $0.10 difference in the fill price can mean the difference between a decent profit and a substantial loss.

Dave J.

Limit your losses on penny stock trading to a fixed percentage you are comfortable with. We suggest somewhere between 20 and 30%.

Set a limit you are comfortable with and stick to it religiously. As soon as your limit is reached, sell the stock and move on to another target. Remember other penny stock investors will have similar limits so that once a penny stock price starts to tank you can expect a wave of selling.

Even if you believe a stock has sound fundamentals sell at your limit. You can always buy the stock again, likely at a lower price in a few days.

One of the most important things in penny stock trading is to set rules that you are comfortable with and then sticking to them.

Todd B.

Using price averaging is a good penny stock trading tip.

Whilst this is a risky trading tip it can reap rewards. Basically price (or dollar) averaging means buying more of a stock as the price falls. This will lower the average price that you pay for your total holding.

So if you hold 10000 shares that you purchased a $1 and the price drops to $0.8 you could buy another 10000 and then have 20000 shares at an average price of $0.9.

As long as the price returns above $1 you will have a higher profit overall. Of course, the price could continue to head down, so this tactic is best practiced if you believe the share price fall is only a temporary dip. Be careful not to chase a stock all the way down with this tactic.

Dave J.

When investing in penny stocks, a good penny stock investing tip is to look for an abnormal dip in the stock price.

A penny stock’s price can dip temporarily due to a fall in performance of a similar stock or a drop in OTC market overall.

You need to look for a temporary drop and see signs of recovery. So, if the price has dropped by 30% and then increased again by 10% this can be considered a possible dip.

It’s important to establish that the dip has been caused by factors not related to the actual companies performance. Again, it’s best to wait a few days to establish that the dip was indeed only temporary.

Todd B.

Buying penny stocks when they have reached a sustainable high is a good penny stock investing tip.

Most penny stocks, after reaching a 52 week high, will come under selling pressure that drives the price back down. But sometimes, often due to fundamental reasons, the stock sustains it’s high price. This in turn attracts further investors or existing investors to increase their holdings.

If the stock has broken through it’s previous high it will likely continue to grow to reach a new level. Look out for news as to how the company if performing in the real world. A new product may have been released or new contracts signed. Anything that indicates improved performance.

Be aware though that the usual selling associated with a penny stock price reaching it’s 52 week high may simply be delayed. Wait a few days to see if the price continues to move up before investing or increasing your holding.

Dave J.

Over the next month we’ll be adding some penny stock investing tips.

These are fairly broad penny stock investing tips rather than actual recommendations. The idea is to give you a grounding on what to look out for when selecting the best penny stocks to trade.

Buy Low and Sell High

Well, that one is obvious! Yes, of course it is, it’s every investor’s goal but it has a slightly different meaning when applied to penny stock trading.

Stocks on the major exchanges have highs and lows the same as penny stocks but they are more likely to trend over time in one direction, either up or down. Penny stocks tend to be more volatile and will fluctuate more often without breaking out of a long term trend.

Penny stock investors are more likely to take profits as a penny stock reaches it’s 52 week high. This selling will drive down the price. Conversely, as the penny stock price heads towards it’s low, people once again see it as a bargain, pile in to buy, driving the price back up.

Therefore look for penny stocks that are at or near their 52 week low. Keep an eye on the stock for a few days and make sure it is not headed for a new low before investing.

Todd B.