Day trading penny stocks can be risky business, as with any other venture that involves speculating in the stock market. Penny stocks are a margin above the rest, however, since they are at a higher risk for limited liquidity, limited or absent financial reporting, and fraud.
Penny stocks are most closely associated with pump and dump schemes, where stocks are brought in bulk by stock speculators and a massive campaign to promote the stock starts, jacking up the price of the stock. Then the speculators exit, leaving investors with worthless shares and their mouths agape.
Although not all penny stock companies are fraudulent, careful research must be done if you are planning to invest in penny stocks. Many penny stock companies are listed in list sheets like OTCBB and Pink sheets which have low listing requirements.
Be wary of companies that are lacking in financial history information, which you need in order to make an accurate assessment on the penny stock that you are interested in.
A consolation is that in day trading penny stocks you only get to hold on to your stocks for a limited amount of time. As soon as you ride the increasing wave of demand, sell your stocks and rake in the profits, you are now ready to go to bed and prepare for another day of trading.
And the analysis needed to day trade in penny stocks is nowhere near the complexity of the analysis needed to trade in stocks for longer investments.
There are now also penny stock software that can help you monitor your penny stocks so you donât need to sit in front of the computer monitor all day.
Alternatively, Michael Cohen has a penny stock newsletter that provides weekly penny stock picks of the hottest stock picks in the market. These are selected by experienced traders, though there are no guarantee of profit, it can provide a good starting point to place your trade especially if you are new to investing in penny stocks.