Today, an interesting comment appeared after I uploaded my recap video to my YouTube channel. “Life know Everything” commented:
“bro, why r u not trading on low float stocks bcoz there is so many trader who claimed that they make $10,000 – $30,000”.
To answer “Life know Everything”, I must say that I am more of a trader toward mid to large float stocks like MU, GE, AMD and so on rather than trading low float (under 20 million) stocks which are often less than $5. (In trading, anything less than $5 is often called penny stock, they’re not necessarily just stock priced under $1.)
There is nothing wrong with trading penny stocks, but you have to be aware of their difficulties and challenges. They are extremely volatile, often with low trading volume and scary swings with each transaction. They are very difficult to manage risk in, which is THE number one important skill every trader must master. Stocks like GE on the other hand are less volatile and you can easily manage the risk. Liquidity (trading volume) is often not an issue on mid to large float stocks and you can stop out without a significant slippage. The price will often move in 1 c increments, and you do not see those large scary swings of 10%-20% within just a few seconds.
I know many new beginner traders lose and blow up their accounts trading penny stocks, just because they see people on YouTube and other social media posting amazing profits. Although I do trade them from time to time, I personally stay away from them most of the time, and I am not embarrassed to be honest and say that. For me, consistency is the key. Making a small and reasonable amount of money every single day is the key. That is How to day trading for a living. There is no point in making $10,000 in a day just to lose $5,000 the next day and $10,000 the day after that. The account curve of consistently profitable traders is like the picture below on the left-hand side, and inconsistent traders (eventually losing traders) are like the picture on the right. Which one do you want to be?
This is what Zlisc posted after watching the same YouTube video:
“Andrew, the moment I started trading like you, I started to have consistent green months. You actually changed my life in a way so thanks for that.”
Make no mistake, there is nothing wrong with trading penny stocks, but it is important to learn them properly, and to be ready for the emotional and financial roller coaster ride that they are. You should understand as well that they are also significantly more difficult to master.
Which type of a trader do YOU want to be?