Nowadays, it’s almost impossible to visit an online traders’ forum without reading about a new penny stock that will make you rich. I always knew penny stocks had potential, but figured there’s got to be a catch, right?

Well, actually, there is the possibility of someone becoming a penny stock millionaire but the road to success requires investors implement basic financial research to find the markets’ reaction to important financial events, as well as a keen understanding of the potential losses of capital (and associated risks) in trading penny stocks.

When I started my sophomore year, I decided to give stock trading a chance, and opened an account with a little over 1,000 dollars. I read a lot about publicly traded chip companies, which I thought to be an interesting sector with a growing demand, and traded mostly on the likes of Texas Instruments, AMD, Intel and Qualcomm. The thing is, a year went by but my profits were really quite slim, around the 50 to 80 dollars a year – not what I was hoping for after all the research I did on chip manufactures.

A friend recommended I try a different approach: “look for the smallest players in the industry, and try to see if and when they’re expected to take central stage”. Well, to make a long story short, he was right, big time! Now I’m going to explain why and how you can also get there (as well as go through the trading pitfalls you want to avoid on the way).

What Are Penny Stocks And How To Trade Them?

Penny stocks, also known as small-cap stocks, are common shares of publicly-traded companies that trade at a low price on public over-the-counter (OTC) bulletin boards, as compared to regular stocks that typically trade on major market exchanges. Penny stocks are highly speculative, (frankly: they are still considered one the riskiest forms of trading). Yet, nonetheless, millions of people trade them on a daily basis. There are many reasons for trading penny stocks. Probably the most common reason is their extremely high profit potential. People like investing in something they can profit off of in a relativity short period of time. Plus, there are few limitations (such as opening an investment account to start trading, obtaining credit or cash collateral, investing with a minimum amount that is usually set at a high rate, etc.). With penny stocks, you only need an internet connection, a fundamental understanding of the stock market, and the ability – and willingness – to take risks.

Patience And Time: What Every Penny Stock Trader Needs To Know

Many beginner penny stock traders want to make fast profits; but professional traders think longer-term. A professional trader does not trade for the excitement of the moment or because he wants to make a fortune using a few extra dollars. He is in it for the profession, and day trading is definitely a profession that requires strategy. With that said, you can earn a relatively large amount of money from penny stocks – and the higher the potential return on an investment, the higher the risk. Just keep in mind, there’s work to be done before and while trading penny stocks. It took me 13 months of trial and error until my investments achieved 20X ROI in less than 20 days, a trading strategy that I set for myself early on.
What You need to bear in mind is that whilst there are no guarantees for success (and statistically wise, throughout your trading, 9 out of 10 trades are likely to fail), you just need 1 big move to reach a 5-digit profit. That’s my penny stock trading strategy in a nutshell: study, and study hard, takes dozens of risks – but, no matter what, stick in there until the winning penny stock makes it to the holy grail. That’s what happened for me when I switched my focus to the bottom of the chip manufacturers’ chart.

First 10 Days: Explore The Market, Cherry Pick For Investments

Let me illustrate what I’m talking about with 2 companies I discovered during the first stage of my penny stock strategy: Axcelis Technologies (ACLS), a provider of equipment and services to the semiconductor industry based in Massachusetts, and Camtek Ltd. (CAMT), an international manufacturer of automatic optical inspection and process enhancement systems. Both companies provide equipment for the main players in the industry, which is becoming more and more consolidated (lately, it seems the big chip companies are on an M&A frenzy). This makes them increasingly influential for maintaining the industry’s steady growth rate. Two years ago, I noticed both stocks were, to my understanding, undervalued and as such, I believed they were valuable stocks worth buying. Despite a rocky start in mid-2015, and quite a lot of volatility throughout the following 12 months, Camtek’s stock gained year-on-year (YoY) +155% and Axcelis gained +91%, outperforming by more than 70 percent its earnings estimates for the last 2 quarters of 2015 and the first 2 quarters of 2016. But what’s important here is that the movements in both penny stocks took place in a very short timeframe, and that’s what you should be looking for.

Next Step: Take Risks, And Then Take Some More

Axcelis and Camtek could have easily been among the dozens of penny stocks that I tried my luck with but did not reach returns. To get to the cherries in the market, you need to be willing to trade a large number of stocks: something that is relatively possible due to penny stock’s low price value. However, once you notice a strong momentum moving against you, you need to get rid of your positions before it’s too late. Remember, penny stock trading is a never-ending road with lots of bumpers and very few green lights. You can read here about the dangers of penny stocks. You MUST take into consideration that not everything will work in your favour; profitable results will not come immediately, if at all, but when they do, the rewards are sweet and long-lasting!

Another Possible Direction To Online Trading

If you’ve reached this far, you’re probably thinking this is too good to be true. In many ways, you are right; penny stock trading is surely not fit for all. This type of trading has its share of setbacks and unexpected turns – the growing threat of online scammers, risks related to unpredictable volatility and the difficulty trusting OTC markets – to mention but a few. Many people prefer trading with a broker on their side. If you too find penny stocks are not exactly your cup of tea, there’s an interesting alternative many beginner and professional day traders are using at rapidly growing numbers: online Forex/CFD trading. If you’re going for this path, I recommend sticking to a Forex/CFD broker that is authorised and regulated by the Financial Conduct Authority (FCA), such as Fortrade Ltd.

OPEN AN ACCOUNT WITH FORTRADE TO TRADE PENNY STOCKS OR FOREX!
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