In this post, we’re going to take a look at how large a position should you hold if you’re trading penny stocks.
A lot of people get into trading penny stocks, and that’s okay. There’s no problem with it.
There’s a certain part of it that goes into your portfolio. But if you’re trading penny stocks, you need to understand that you just can’t trade your full account – especially if you have a larger account. You need to understand that.
When you’re trading penny stocks:
- they are smaller
- they’re less liquid and
- you can move the stock
- you can get stuck in the stock
The last one is even worse.
We’re doing this lesson due to our upcoming course that’s called Penny Stock Profits.
Here’s also another course Penny stock Case Studies
How Many Shares Should You Trade When Trading Penny Stocks?
You have first to understand the amount that’s traded.
Why does it matter?
Well, if you’re trading too much if and you’re trading too large of a position, you can move stock or get stuck in a position.
Let me share with you an example here.
Think about how many shares does it take to move this stock.
On average, you’re trading about 40,000 shares. The average is the 20-day average. Why 20 days?
Well, because there are 20 trading days in a month.
Here we’re getting on average about 40,000 shares traded on any given single month. Sometimes it’s around 16,000, 20,000. But let’s say 25,000 or 30,000 shares or so.
The stock’s price is $2.63, which means how much money does it take to move that stock? Think about it.
On any given day, if we got about 40,000 shares traded and we’re pricing it at about $2.63 per share, it takes only about $105,000 to move this stock. That’s how much money inflow is going through that stock every single day. That’s not a ton of money when it comes to stock trading.
Bank of America Example
When you look at this, you’ll see that we’re trading about 41.7 million shares already, and the day is not even over.
To move that stock takes a lot of power.
What about lower-dollar Penny Stocks?
However, to move these other stocks (penny stocks), it doesn’t take as much. That’s the case, especially if you’re trading lower dollar stocks. Some of these stocks are trading only 8,000 or 9,000 shares.
8,000 shares X $2.30 = $18,400
If you’re in this position right here and somebody decides to dump it – well, this is what happens. They sell off fast because you’re dumping a ton of shares.
And that’s not a lot of money. On average most traders do have $5,000, $6,000, and in this case, they would move a stock like this.
Amount That You Should Trade
What’s the most amount that you should trade?
I would say look at something more like 20%.
In this case, we’re looking at trading about 9,000 shares on a day to day basis.
20% of 9000 shares is 1,800 shares.
You don’t want to trade more than 1,800 shares on this stock. That’s because you might get stuck in that position.
How do you get out of that position?
They’ll take you multiple days just to get out of that position.
If you want to be safe, you could think of it like 10%. In that case, you need to trade 900 shares.
Also, you’re still in that case pretty large or a good size position. If you want to be stealthy, think of it like Bank of America. If you have 41 million shares traded, and you’re only trading 1,000 shares, you’re looking at in this case; you’re trading 90 shares. And in that case for a penny stock, it’s not worth it.
You’ll never be as stealthy as you will with the big companies. But what you want to do is be a little more stealthy. That’s why sometimes it’s good to trade a little bit larger stocks — this one’s trading 179,000 shares.
In that case, it takes much more money and capital to move that stock. The same thing is with stocks that are $10. This is also cheaper stock, and it’s also trading about 415,000 shares today or averaging about 930,000 shares on any given single day.
Bad Things That Might Happen
As a rule of thumb, trade less than 20% on any given single day. Or have that many shares. Don’t have more than that because if you have more than that, you could get stuck.
When you’re in that position, this is what can happen.
There’s movement big movement that happens because they’re either stuck or they need to get into a position. Whatever the case is, it moves the stock around in a weird way.
Be very careful! And that’s why we have this course coming out. We want to share with you these big concepts on trading penny stocks the right way.
Be sure to check out these courses:
I hope you found this video helpful and insightful and gave you some things to think about as far as trading penny stocks.
That’s the smart approach. You need to be very careful. You need to be stealthy when dealing with this and understand what the heck you’re doing before trading too large of a position.
Especially if you have a little bit more cash in your account.