I have been trading stocks as a hobby for a long time. However, it wasn’t until I started trading penny stocks that I made enough profit that I could easily quit my primary income job and trade stocks for a living. I know what you’re think… how does he do it, right? Read on and I will tell you.
Recently I have read several online articles on various sites that make the claim that trading penny stocks is like gambling. As an active and very successful stock trader, these sorts of statements irritate me as they are not true for most traders who trade the otcbb and pinksheets. In fact, far from it, I don’t really enjoy any type of gambling because I enjoy making money far more than losing it. I don’t even like going into casinos, although playing poker can be fun as there is at least some strategy to that.
Now this is not to say that there aren’t some traders out there that do indeed trade penny stocks with the same random pattern as pulling the lever on a slot machine or rolling the dice while drunk in Las Vegas. However, these are usually newbies to the stock market and they burn out very fast. Those investors that are serious about making money with penny stocks soon learn techniques that allow them to do so and they soon learn they can make more money with stocks that trade for less than $5 per share than they can trading traditional stocks that trade at more than $5 per share and have a much larger market cap and total net worth. I personally look for ones that are on the verge of breaking out and once I make a nice profit I usually sell and lock in my profit. I am not a daytrader but I also don’t believe in being so greedy I miss out on locking in my profit when I have the chance to do so.
I also want to be totally honest with you. Penny stocks are notorious for being involved in scams where unscrupulous people manipulate the price by promoting certain penny stocks in a less than truthful or ethical way. You’ve probably heard of “pump and dump” scams and it is imperative that whatever method you employ to trade these stocks that you are able to avoid these types of scams.
There are many of us that make a very good profit on a consistent basis trading penny stocks. We have learned methods to minimize risk and avoid scams. We have also learned how to find the top 1% of these stocks and also when to trade these to maximize profit.
There are successful traders like Peter Leeds who analyze penny stocks using methods similar to the “fundamental analysis” used for stocks that trade at much higher prices and have much larger market caps. For me personally though, I have found that this type of analysis does not work well for the majority of penny stocks. However, it does work for some of them and for times when it does work, this method would certainly not be considered gambling by anyone who understands the stock market.
I will say though that the “Leeds method” and similar approaches to finding good penny stocks is not my first method of choice for two reasons. First, it simply doesn’t work on many categories of penny stocks that I think show a great deal of promise. This includes ones that I have traded and made a very nice profit from! Second, it takes an enormous amount of time using these types methods just to analyze a few stocks and that’s once you go through the very steep learning curve which can take months, in fact years to truly master.