| Those who trade penny stocks have gotten a bad | | | | However, if you are going to trade penny stocks |
| name over the years from those who have | | | | effectively and profitably then there are a few things |
| advocated a buy and hold strategy. It is easy to | | | | to keep in mind. |
| advocate a buy and hold strategy when you are in a | | | | Trade only stocks with good volume. Stocks with |
| bull market. As the saying goes, "A rising tide floats all | | | | poor volume can be too easily manipulated. Low |
| boats." | | | | volume stocks also tend to have larger spreads. I |
| However, when the bull market disappears as it did in | | | | would prefer not bo have to make up a larger |
| the past year, buy and hold doesn't fare too well. If | | | | spread. Penny stocks with high volume will probably |
| you don't believe me then ask the owners of | | | | only have a 1 cent spread. High volume stocks will |
| Citigroup, Merrill Lynch, General Motors, Chrysler, AIG, | | | | allow you to move in and out of the stock without |
| etc. The list could go on and on. Everyone who had | | | | effecting its price. |
| committed to the buy and hold strategy this year | | | | Have an entry strategy. Know why you are getting |
| suffered tremendous losses in their accounts. | | | | into this stock. I trade penny stocks primarily on |
| In my estimaton the only way to "play the markets" | | | | technical indicators since most do not have any |
| is by actively trading. And I believe the best type of | | | | fundamentals to speak of. Too many traders enter |
| stock to trade is a penny stock. Now that may | | | | on advice from someone else. They may have heard |
| come as a surprise to many but let me briefly explain | | | | something on the TV or from a friend or from one |
| why. In a nutshell, it is because penny stocks will | | | | of the many penny stock hot tip sheets. Determine |
| make large swings quite often that will allow you to | | | | beforehand what will cause you to enter a trade and |
| make tremendous profits. Penny stocks will often | | | | stick to it. |
| make moves of 10%, 20%, 30% or even 100%. It is | | | | Have an exit strategy. Know when you will get out |
| much more difficult to get those types of moves out | | | | of the trade before you ever enter the trade. You |
| of larger more expensive stocks. By the way, I | | | | should never let your losses run and you should not |
| guess I should state that I consider a penny stock to | | | | let all of your gains erode. Develop a sound exit |
| be any stock trading at less than $5 per share. | | | | strategy and let it be your guide. |