How to Use Swing Trading With Penny Stocks

If you've ever dreamed of making huge returns in the course of a short amount of time in the stock market, then you have the impulse to be a swing trader. A swing trader holds a stock for as short as a few minutes to a couple of weeks before "swinging" out of that trade, taking their profit and moving on elsewhere. Here's how to swing trade with penny stocks.

Difficulty: Moderately Easy

Instructions

1. Search and scour for the opportune penny stocks. You are looking for a company that has a great story. That means a drug that can cure all cancer or an oil company that just found untapped oil. Something big that excites you will also excite other people as well.

2. Look at the highs and lows of the penny stocks. Because penny stocks usually don't trade a lot of shares, their price can be manipulated quite easily. Never buy a penny stock near its high. Look for a penny stock that has been trading around its low for a while.

3. Purchase a large amount of the stock. That number will be different for everyone. Just remember to use only speculative money. This should not be your entire portfolio, but just a small slice you like to have fun with while playing in the market. Picking up a minimum few thousand shares is ideal.

4. Advertise your purchase of the penny stock. That means as you join communities of stock groups, tell people why you think they should be in the stock. Don't lie about the story, but phrase it in a way where the company's best foot is put forward. Spread as much hype and heat as possible. However, do not collude with other people to manipulate the price. That is a felony.

5. Watch for news that the company is releasing. Stocks tend to move on earnings, which happens 4 times a year, or when a positive or negative piece of news comes out. Be ready to sell into the rally. Also, when you purchase your stock, keep an eye on the next earnings date. Buying a couple of weeks before will get you in before the rush, if earnings are good.

6. Set your sale price and walk away. Because penny stocks don't trade on the normal exchanges, they aren't as liquid as the big boys. That means you want to place a standing sell order. That way when your penny stock hits its target price, your order will be one of the first filled. Don't worry about leaving money on the table by not selling at the top. You will never correctly guess the top of a rally. Move on and continue swing trading on your next victim.

Tips & Warnings

• Swing Trading is a very volatile way to trade. Combine that with penny stocks which are volatile in their own right, and you've created a recipe for wild fluctuations in price up or down. Do not use money you need to swing trade penny stocks. Liken it to the money you would gamble with at a casino for fun.
• Never buy off stocks because of a random email or fax that touts the company as the next big thing. You'll be the last guy into the party before everyone else pulls their money out.