Hey there, I’m Ross Cameron. You might have heard my story of turning less than $600 into over $10 million through trading, and a significant part of that success came from trading penny stocks. I want to share my experience and insights into the world of penny stocks, drawing from my journey and the strategies that have brought me consistency in the market. Remember, what worked for me might not work for everyone, but I believe there’s value in sharing this knowledge.

Understanding Penny Stocks

First things first, let’s talk about what penny stocks actually are. According to the U.S. Securities and Exchange Commission (SEC), penny stocks are stocks priced under $3 a share. But personally, I find that definition a bit broad. In my book, a penny stock is something that trades for less than a dollar. This is because the trading mechanics significantly change under that one-dollar mark, something that doesn’t quite fit with stocks trading just a bit under $3.

When you’re dealing with stocks over a dollar, they can only fluctuate in whole penny increments. This is pretty straightforward. However, once you dive into the realm of true penny stocks—those trading for less than a dollar—their value can shift by fractions of a penny. It might not sound like a big deal, but it actually changes the game. A stock moving from 90 cents to $1 involves 1,000 increments if you consider the possible fractions of a penny. This means that in the penny stock world, the price movements can be both rapid and dramatic, making it a different beast from regular stock trading.

The Different Flavors of Penny Stocks

When most people think of penny stocks, they likely envision some shady, over-the-counter (OTC) operation. But there’s more to the story. You see, penny stocks are not all created equal. Some trade on reputable exchanges like NASDAQ and the New York Stock Exchange (NYSE). These are stocks from companies that might have seen better days but are still clinging to hope for a turnaround or at least maintaining compliance to stay listed.

Then there’s the other side: the OTC stocks, which can be like navigating a minefield. They’re divided into tiers, with varying degrees of financial scrutiny and compliance. At the bottom are the pink sheets, notorious for their lack of transparency and making them ripe for manipulation. My approach steers clear of this murky world, focusing instead on stocks listed on more reputable exchanges.

The Risks and How I Navigate Them

Trading penny stocks is not without its dangers. It’s easy to become a “bag holder” — someone left holding the bag after a stock’s value plummets. And then there’s the issue of stock splits, particularly reverse stock splits, which companies use to artificially inflate their stock price to maintain exchange listings. These can spell disaster for unwary investors.

My method for navigating these risks involves a mix of careful selection, risk management, and timing. I use a scanner to identify penny stocks showing strong upward momentum, focusing on those listed on NASDAQ or the NYSE. Volume is critical here; it’s a sign of interest and can indicate the potential for significant price movements. Once I’ve identified a promising stock, I use stop-loss orders to manage my risk, setting them just below the recent low of the stock’s price wave. This way, I limit my potential loss if the trade doesn’t go as expected.

A Case Study

Let’s dive into a recent trade to illustrate these principles in action. I spotted a penny stock up nearly 70% for the day with a substantial trading volume. It was one of the leading percentage gainers, making it impossible to ignore. I bought in, even though it had already experienced a significant price jump, based on the momentum and volume—classic indicators of continued interest and potential for further gains.

In this trade, my entry was based on the stock’s price movement following a pullback—a common pattern I look for. It’s like catching a wave: you wait for the pullback to start cresting back up before jumping in. My risk was calculated based on the previous low in the stock’s movement, ensuring I knew my exit strategy if the tide turned against me.

The Lessons Learned

Trading penny stocks is not about hitting home runs every time. It’s about consistent base hits. By managing risks and focusing on stocks with strong indicators of growth, I’ve found a strategy that works for me. It’s about finding that sweet spot between potential gain and acceptable risk, and then applying discipline to follow through with your plan.

Wrapping Up

Penny stocks have played a pivotal role in my trading career, offering opportunities that simply aren’t available with higher-priced stocks. The key takeaway here is not that penny stocks are a guaranteed path to wealth—far from it. They’re a tool, and like any tool, their effectiveness comes down to how they’re used. Through years of trading, I’ve learned to navigate their volatility, manage their risks, and capitalize on their potential. Whether you’re a seasoned trader or just getting started, I hope my experiences can provide valuable insights into the fascinating world of penny stocks. Happy trading!

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Warrior Trading was founded by Ross Cameron in 2012. Today Warrior Trading is a thriving community of thousands of day traders learning to trade under the curriculum designed by Ross.

You can learn more about me on my websites, RossCameron.com and Tirekickers.com

Check out my articles on Business Insider. You can also find more on Entrepreneur.

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