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Using Momentum Trading to Find Hot Penny Stocks

Momentum trading is caused when information on a stock is mentioned to the public and investors rush in to buy the stock. This can happen because of newsletters, blogs, articles, press releases, email promotion, etc… Momentum investors look to make money from quick price changes. They rush to buy the stock when they receive the “tip” hoping to react before others. As other investors respond, the stock price goes up. Typically, the first few buyers will start selling the stock when the buying begins to slow down. This type of trading is very common with low priced penny stocks.
Let’s take the example of today’s most common communication median… the email. An email is sent reaching 5000 investors covering a.10 penny stock. This produces a rush to buy up the stock. Market makers begin to raise their price because they do not have much supply of the stock and they see the demand rising. Investors will see the price go up and they place orders quickly. And because this is a low price stock with few shares available, it takes little activity to send the stock higher. And just in the same short period of time the stock could go up, it can come right back down… as the first buyers begin to sell off.
The only way to profit from momentum trading and catch a hot penny stock is to place your buy as soon as you receive the email. One way to protect yourself is to use a limit order since the price changes fast. Do not fall into the trap of chasing the price as it moves up. If you keep chasing the price and happen to catch it towards the end of the run, you’ll get in just as the first buyers begin to sell.
Momentum trading is extremely risky but can be profitable if you are disciplined and don’t get too greedy. Decide exactly what price you’re willing to pay for the stock and stick to it. Once purchased, immediately place your next trade by using a limit sell. Again, do not let greed get the better part of you. Many investors hold on too long because they see the price going higher. You need to be one of the few disciplined investors who can place a sell order 10 minutes later and walk away with a small profit. Stick to this method and all the small profits will add up.
About StockProfessors.com
StockProfessors.com is a website that profiles stocks of interest. We are not licensed brokers or financial consultants. Please be advised that the information contained may or may not be complete and is solely for informational purposes only. This is not to be construed as an offer to sell, hold or the solicitation of an offer to buy. Investors are encouraged to seek opinions by their registered brokers or financial advisors after extensive due diligence is performed.
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Tags: Momentum, Penny, Stocks, Trading, Using




View this post on my blog: http://stocktips.valuegov.com/using-momentum-trading-to-find-hot-penny-stocks/


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