Day Trading Penny Stocks - Tips & Truths

When you first begin this venture you should be aware of NASD rule 2520 for pattern day traders. It states that anyone who makes 4 or more round trip day trades in any 5 business day period must maintain an account balance of at least $25,000, or risk having their trading privileges suspended.

The penny stock market is full of scams, frauds and terrible companies that will never make a dime of profit. O.k., does that mean you should avoid them? Not necessarily, even though these companies are bad investments, they can still be great trades. The main thing is that you know going in that this is a very short term trade, and not a long term investment.

Follow the money, and the crowd. When I first began trading penny stocks I had a tendency to over think it. Instead of following a newsletter or picking service, I wanted to find stocks on my own without any help. Partly because I couldn't believe that it could be as easy as following everyone else. I finally learned that winning in the penny market can be as simple as following a crowd, and thus the money. Now, your crowd can be a free newsletter, a premium newsletter, or even a message board. Whatever it is, if there are enough people following the same crowd, there is money to be made. For me, I have had the most success following a premium newsletter.

Premium newsletters are paid by companies to promote their stock. I mention this because some traders seem to have a problem with it. So let me remove the blinders, burst your bubble and tell you that yes, sometimes when you get an alert from a newsletter telling you how great this company is and how the technicals are amazing, often times it's because they got paid $2,500 to tell you that. So what, you think that's a bad thing? How else will they get word out about a big contract or new product? Trust me, when Google had their IPO they spent plenty of money on promotion. so just relax, take the information for what it's worth and hope that everyone who reads that newsletter likes what they see so that you can ride that promotion as far as possible and book some profit.

These are just a few things I learned the hard way over the years. Just remember, you can make a lot of money day trading penny stocks by keeping a cool head and using some common sense.