Last Updated: 16 December 2016
Is becoming a penny stock millionaire a reality?
Not to be confused with Timothy Sykes’ Penny Stock Millionaire, can one realistically become a millionaire trading penny stocks?
I guess anything is possible, but first we need to define what I mean be penny stocks.
The official definition of penny stocks can be found here. But the penny stocks I’m referring to include penny, micro and small cap stocks, usually under $10 (but I don’t discriminate), and traded on all exchanges including NYSE, NASDAQ, AMEX, Pink Sheets and OTC.
At the end of the day, I don’t really care what the price of stock is. If it’s a good company, a solid investment or trade for which I can make quick gains, I’ll look at it.
So, the short answer is , of course you can become a “penny stock millionaire”.
It’s pretty far fetch to expect to become wealthy trading hot penny stocks using the methods of Penny Stock Prophet (James Connelly) or Penny Stock Egghead (Nathan Gold). For these strategies are just marketing hype, and complete BS designed to entice naive novice traders to buy their picks.
We’ve all heard mega success stories, are these real?
Who knows, but with a systematic, disciplined approach, one can definitely aspire to become a millionaire investing in awesome penny stocks. How fast largely depends on how active you are and what account size you start with. It can also depend on whether the stock market is bullish or bearish, or neutral.
In a bull market, knowing which penny stocks to watch is critical. Many stocks can skyrocket hundreds, even thousands, of percent within days or weeks. Sheep (i mean investors) pile into stocks with no regard to any fundamental or technical analysis whatsoever. An astute trader who can recognize when to buy and sell, can take advantage of this and ride the momentum higher.
It only takes a few 1,000%+ winners to really kick start your portfolio.
But most times, these kinds of gains are few and far between. Therefore we must focus on capturing solid, regular 20-50% gains, while limiting losses (and you will have losses). Over time, these gains build up, and the more experience and confidence you have in your trading abilities, the better opportunities you will see in the market, and your investment portfolio can really grow fast.
Here are a few general trading rules that I recommend (regardless of what kind of stocks you are trading) to get you started on the way:
- Never risk more than 20-30% of your trading capital in one investment or trade. This amount will vary between investors, depending on appetite for risk, and ability to fund your account etc, but no matter how confident you are of a “sure winner”, risking too much can be disastrous if you are wrong (and you will be wrong).
- Limit your losses to 10-15% of your investment. Again, this will vary a little between individuals, but you must recognize when a trade is not working out as planned, and move on. Not only is there the real cost of investment losses, but also the opportunity cost of investing in a winner.
- Take profits, partially or in full, when you have a winner. Often times a winner can turn into a loser very quickly, so make you are not greedy and take profits along the way.
- Be careful buying large gap ups. Often times pre-market demand can force the stock to open much higher than it closed the previous days. Once the stock has opened, existing holders will often sell, pushing the stock down. This often ruins any and all chance of momentum, so the only winners in stocks that gap up large are those who held the stock at the close the previous day.
At the end of the day, becoming a penny stock millionaire can be hard work, but is not impossible. Just make sure you follow the rules above, trade small positions while you learn, find a reputable penny stock newsletter that provide a great list of penny stocks (ah hem, Shiznit Stocks), and stick with it.