Why don't penny stocks work?
by Gary James on Tuesday, August 10th, 2010 | 4 Comments
Ok so about a month ago i wanted to get into buying and trading stocks. I went to this mock trading site called "howthemarketworks.com" and started with only 0. I decided to specifically dead with penny stocks and now a month later im making about 0 a day. Ive been told that penny stocks dont work but they seem to be working out great for me. Am i missing something?
Hey everyone, Gary here. Stock trading was never my forte'. I lost tens of thousands of dollars listening to stupid advice and letting other people trade for me.
You’ll miss your money if you think paper trading can be duplicated in real trading. You may be smart…. but only Bernie Madoff can get the results you’re seeing.
Why? First off there’s no way paper trading can account for liquidity. If there are no people wanting your stock at the price you’re offering it…… paper trading won’t know that. I’ll bet you don’t even have a stop on these positions! A 50% or more loss (which can happen easily) can quickly damage your profitability. What about large gap downs?
It takes the average successful trader 3-5v years to learn penny trading. Trading psychology & money management are 90% of what you need to know…. The rest is Technical Analysis.
OK…. I know you won’t believe me. You’ll go ahead and start trading without even reading 3-4 good books on the subject…….. after all…… you know better!
You must be awesome at seeing a good deal, penny stocks are make it or break it corporations, many go belly up and die in the real world.
Penny stocks are extremely risky. When you hear that penny stocks don’t work, what people mean is you will likely make a lot of money and you will likely lose it all.
Paper trading, or mock trading, doesn’t work with penny stocks, because you can’t easily duplicate the supply and demand of the real market. It’s easy to buy as many shares as you want in the real market, but when it comes time to sell for a profit, you’ll be hard-pressed to find a buyer.
The chart might show that the price is swinging back and forth 100% each day, but that movement likely represents only a small number of shares, and it doesn’t mean you’ll actually be able to take advantage of that movement.
If you stick with higher priced stocks, say $5 and up, and longer term moves, from 30 days up, your mock trading results will be more realistic.