-
Step 1
Learn about penny stocks. There is not as much information about penny stocks as there is about stocks that trade on the major exchanges. With penny stocks you have to depend mostly on your own research although there are publications about penny stocks. Read "Penny Stock Magazine," "Speculators Magazine," "Penny Stock Preview," and "Low Priced Stock Digest." These magazines offer penny stock recommendations and tips on buying and selling low-priced stocks.
-
Step 2
Choose penny stocks you know something about. When investing in stocks it is important to understand the industry the companies are in. Many industries are cyclical which means the prices raise and fall in a somewhat predictable pattern while other industries may have a steady upward climb like food companies. Penny stocks cover a wide range of industries so it is best to work with companies whose products and services you understand. Equally important is a good earning history over the last few years or months, depending on how new the company is. Many penny stocks are IPOs or initial public offerings. In this case read the prospectus of the company carefully. The prospectus tells an investor about the financial details of the company such as amount of debt and amount of capital.
-
Step 3
Play online trading games. Once you have chosen stocks you are interested in, you can become a virtual day trader to practice honing your skills. There are online companies that make it easy to buy and sell stocks with virtual money. This is an excellent way to learn how to day trade because with this type of investing you have to carefully monitor the price changes throughout the day. Day traders make money from the small daily price movements of individual stocks. Investopedia, a subsidiary of Forbes, has an online stock trading game called Stock Stimulator,
-
Step 4
Find a broker that handles penny stocks. Not all stockbrokers execute trades for penny stocks. One reason is that the commission on low priced stocks isn't very much. There are discount brokers that have lower commission rates and smaller initial deposits. For some brokers the deposit is $500 to $1000, but a few brokers like TradeKing have no minimum deposits at all. These are the brokers most likely to deal with low priced stocks.
-
Step 5
Create a trading plan. Before you place your first real trade you need to know what stock you plan to buy, when you plan to buy it and when you plan to sell it. The opposite is also true if you plan to short-sell a stock. Short-selling is selling a stock because you think the price will go down in value. Since you make money on predicting the price movements of a stock you need to have good reasons why you think a stock will go up and/or down during the day. Planning ahead is of paramount importance in day trading. You have to analyze the financial data of a stock to determine its price movements or to find a trend. Discipline is required in successful day trading of penny stocks.
