Free Penny Stock Tips for Beginners

Before beginning to trade penny stocks you need to spend time educating yourself. After all, you do not invest your money simply for the experience. You invest to make money. There are things that you will need to learn so that you end up making thousands of dollars rather than losing thousands of dollars.

Pick The Right Stock Broker

Now this is fairly simple to do. There are really only two things that you need to keep in mind. The first is that you do not want to use a full service broker. The cost of the commissions will eat into your profit too much. The only reason to ever choose a full service broker is if you plan on relying on the stock picks of a broker. Most full service brokerages do not want their financial consultants suggesting that their clients buy penny stocks. So for all intents they are not the right choice for a penny stock broker.

The second thing that you will want to keep in mind is if you plan on shorting penny shares. There are certain brokerages that are better at obtaining shares to short. Penny stock whizzkid broker is Think or Swim, Interactive Brokers, Sago Trading and Zecco. If you do not plan on short selling companies then any discount brokerage where your commissions are $8 or less would be a good choice.

Practice Diversification at the Start of Trading

I am not a big fan of diversification. I prefer to manage only a few stock picks at a time and watch them closely. With the being said, I would recommend that the beginning penny stock trader practice diversification. Until you have learned to trade and have honed your craft you will not want to put large chunks of your trading capital on an individual trade. Until you have learned to control the emotions of fear and greed you are putting yourself at risk. I would recommend never committing more than 10% of your trading capital to any one trade when you are new to trading. Once you are more comfortable with what you are doing and have shown the ability to cut losers before they become a drag on your account you can consider increasing the amount that you commit to any one trade.

Do Your Own Research

What I really mean here is to not only do your own research but also to make your own trading decisions. Do not lean on stock picking services or newsletters. You have the ability to make your own trading decisions. I make most of my trading decisions based on technical factors. I perform fundamental analysis only to assure myself that I am not stepping into a company that is going to go belly up anytime soon. I am usually not interested in the long term viability of a company. I am a day trader and have a short time horizon. In fact, if you are using a strategy that shorts penny stocks then you might want to attempt to find companies that do have fundamental problems and short them whenever they get a spike in price. Micro cap traders such as Tim Sykes has made a nice living doing this for years.

Adopt a Strategy to Suit Your Style

Most successful traders use a particular strategy that they feel comfortable with. There are some traders that “trade from the gut” but most only lose money that way. If you pressed those that claim to “trade from the gut” you will find that somewhere in their mind is a set of criteria that they are looking for. That, in essence, is their system. You need to know what will cause you to enter a trade. Is it a technical indicator, a breakout, a divergence between indicators, a result of your penny share research, etc. How much profit are you looking for on each trade? Where will you exit the stock if it moves against you? Will you enter full positions or partial positions? How much will you commit to each individual trade? There are many questions to answer. Sit down before beginning and lay out a specific attack plan and then execute it religiously

Penny Stocks for Dummies PDF FREE!!

What Are Penny Stocks

Penny stocks are defined as stocks that trade less than $5 a share. In recent history, shares of now big name companies started off as a penny share trading under a dollar, so there is money to be made in penny stocks according to Peter Leeds Book’s.

They tend to get a bad rap and for good reason. Nearly all penny stocks are not good investments. That’s not to say they can’t be good trades, they are just not something you would put in your 401k. Many of them are just shell companies put together for the sole purpose of a ‘pump and dump.’

A pump and dump is when a company or third party promotes a stock with claims of its the next big company to artificially inflate the price before ‘dumping’ their shares. There are many ways a pump and dump can work. Typically you see them with internet stock newsletters and even hard mailers.

A hard mailer is when a third party physically mails you a stock advertisement talking about how great the company is. Now as we said above, penny shares are never good investments nearly 99% of the time. What you can do however is day-trade them for a quick profit. These type of trades are driven by one thing, hype. In extreme cases, stock promotions can send a stock from $1 to $10 – see stock symbol LEXG from last year. Always remember what goes up, always comes down and down fast in the land of penny stocks.

Why Trade Penny Stocks

So, if penny stocks aren’t good investments why should you trade them? People trade them because of the big percentage moves the stocks are capable of. Stocks under $5 can be dangerous to trade, but everyone loves the quick money you can potentially make off of them. If you buy a stock at $1 and it goes to $2, you make 100%. Now if you try buying a higher priced stock at say $10, it would have to go to $20 to give you the same percentage move. Remember, penny stocks can potentially make you money fast, but the flip-side is also true. Many have lost a lot of money very quickly in this part of the market, this is why they’re referred to as the gutter of Wall Street.

Penny Stock Trading Tips

Let’s take a look at a few tips that can help you from being a losing trader.

1. Never Invest Money You Can’t Afford to Lose – Investing is kind of like gambling. Never use money you can’t afford to lose. If that means you can only start off with a few hundred bucks then so be it.

2. Don’t Invest Your Entire Account On One Trade – Putting your entire account on a single trade is NEVER a good idea. Pick a percentage of your account you are comfortable trading on a single trade, say 10%. That way if the trade goes south on you which will happen, you won’t lose all of your money.

3. You Will Lose Money – It happens to everyone. Some of the best traders lose 50% of the time, but they make sure to cut their losses as quick as possible. Never hope for a losing trade to turn around.

4. Trade Don’t Invest – Never invest unless you have done extensive research on the company you are looking at. Remember a lot of small cap stocks don’t have up to date company info and financials.

5. Take Advantage of Stock Promotions – A lot of traders make most of their money on these type of penny stocks. Ride the hype up and sell along the way. Always try to not get caught in the dump day. Penny stocks are notoriously slow when it comes to executing orders.

6. Learn From Other Traders – There are many of successful traders who are willing to teach beginners. The best ones aren’t free however. is a great source for learning from the best traders and they post every single trade they make so you can see how well they do before picking one that best suits your trading style.

7. Paper Trade – Paper trade is a great way to learn how to trade. Paper trading allows you to use fake money to get used to trading. Many online brokers allow you to open paper trading accounts.

How To Trade Penny Stocks

So you’re interested in trading penny stocks, but not sure how to go about it. Well the first thing you need to do is open a trading account. There are many online brokers you can go with such as E*Trade, Scottrade, Ameritrade, etc. There are also specialty brokers you can choose from. Do your research and pick the one you like the best. Another great thing about some of these brokers is that they let you ‘paper trade.’ Paper trading is when you use fake money to trade stocks. This is a great tool for beginners as they can see how everything works and learn how to trade before using real money.

Once you have your broker, you’re ready to buy your first stock. Let’s go over the different types of orders there are. There are two main type of orders – limit and market.

Limit orders are the ones you want to primarily use. You specify a price you want to buy the stock at and the limit order will get you in at that specific price if possible.

A market order is extremely dangerous to use in penny share. Market orders trades the specific price for speed. A market order will execute your order as fast as possible at whatever price it can. This can cause your order to execute at different price than what the bid and ask are.

That’s why paper trading is so useful when beginners are first getting started. They can get a feel for how trading works before risking anything.

Risky Business

Penny stocks are risky business, but there are ways you can minimize your risks. One of the most important things to do is never risk a lot of money if you are a beginner. Never bet everything you have on a single trade or you will regret it eventually.

Don’t let your emotions rule your trading. This is easier said then done, but if you can limit you emotions impact on a trade you will become a better trader. If you get caught in a losing trade don’t hope for it to come back up. Take your losses and move on to the next trade.

Try out a premium newsletter. There are many traders who have made it big over the years that want nothing more than to teach other traders how to be successful. These newsletters aren’t cheap with some of them in the hundreds of dollars a month range, but the potential profits far outweigh the cost of them. A great site to check out is This site has many traders on here all with verified trades. That way you can see just how successful they really are. Many different kinds of traders are on Profitly including short traders, swing traders and option traders.

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