Penny Stocks, Real Risks

We break down what penny stocks are, why they move so fast, and how to trade them with a clear plan. Then we walk through a real EKSO trade, from catalysts and entries to partial profits, stops, and lessons on risk.

• definition and core traits of penny stocks
• liquidity, manipulation, and volatility risks
• due diligence on business model and financial health
• technical levels, catalysts, and market sentiment
• risk management with stops and position sizing
• trading styles for volatile names
• EKSO case study with entries, targets, and exits
• key takeaways on discipline and adaptability

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Chapters

• 0:01 Defining Penny Stocks And Risks
• 0:26 Liquidity, Manipulation, And Volatility
• 1:46 Due Diligence And Risk Management
• 3:34 Trading Styles: Day, Swing, Momentum
• 5:09 Case Study: EKSO Setup And Catalysts
• 6:30 Entry, Stops, Targets, And Outcome
• 8:35 Lessons Learned And Key Takeaways

Transcript

SPEAKER_00: 0:01

What are penny stocks? Stocks with low market value often traded at low prices, usually below$5 a share. Characteristics Penny stocks tend to experience rapid and unpredictable price changes. Companies issuing penny stocks usually have a smaller market capitalization indicating their size and overall worth. Higher risk reward ratio They offer potential for significant returns but come with increased risk due to their volatility and lower liquidity. Risk rewards of penny stocks Risk Lack of liquidity. Penny stocks have low trading volumes making it harder to buy and sell shares without affecting the price. Susceptibility to manipulation Due to their lower market capitalization, penny stocks can be more susceptible to manipulation by individuals or groups. Higher volatility. These stocks can experience extreme plus fluctuations in short periods, leading to increased uncertainty. Increased chances of loss. Higher volatility and speculative nature of penny stocks can result in significant losses for investors. Potential for high returns, which are the rewards. Penny stocks due to their volatility offer potential for substantial returns if their investment performs well. They can exhibit quick and sizable price movements, presenting opportunities for profit in a short period. The volatile nature of penny stocks allows for potential quick gains if the right trade is made at the right time. How to trade penny stocks. Through research, conduct thorough due diligence on the company, analysis, analyze its business model, industry position, and management and growth potential. Study financials, review income statements, balance sheets, and cash flow statements to assess the company's financial health. Monitor market trends. Stay updated on industry news, market sentiment, and any potential catalyst affecting the company's stocks movement. Risk management. Set stop loss orders, establish predetermined points at which you'll set, limit potential losses. Manage position sizes. Allocate a sensible portion of your portfolio to any single stock or penny stock to mitigate risk. Diversify investments. Spread investments across different penny stocks or other asset classes to minimize overall risk exposure. Utilize trading platforms. Choose platforms suitable for penny stock trading. Platforms like Weebull, Robinhood, AI Invest, or Stocks to Trade are popular among traders due to their accessibility and familiarize yourself with the tools. Learn and leverage the tools provided by these platforms, such as real-time data, technical analysis charts, and stock screeners to make informed trading decisions. Trading penny stocks involves a combination of thorough research, risk management strategies, and familiarity with suitable trading platforms and their tools to maximize the chances of successful trades while minimizing risk. Strategies for trading penny stocks Day Trading The objective to buy and sell within a single trading day. The approach is to capitalize on short-term price movements, often leveraging technical analysis and intraday volatility. The execution is executing multiple trades throughout the day to benefit from small price fluctuations. Swing Trading. The objective is to hold the stock for a few days or even weeks. Their approach is to aim for higher price swings, often based on technical indicators or fundamental catalyst. They execute by entering positions based on anticipated medium-term trends and exit when anticipated price swings occur. Momentum Trading. Their objective is to capitalize on stocks experiencing increased volume and price movement. Their approach is to identify stocks showing strong upward or downward trends with significant trading activity. They execute by entering positions aligned with ongoing momentum, aim to ride the trend for potential gains. These strategies cater to different trading styles and time frames allowing traders to leverage short-term price movements, day trading, capture medium-term swings, or capitalize on ongoing movement trends and the volatile penny stock market. The trade The Pajama Trader and EKSO EKSO Overview EKSO is a penny stock in the medical device sector. It specializes in developing exoskeleton technology designed to assist individuals with mobility challenges. The pajama trader's analysis conduct a thorough due diligence on EKSO including studying its product line, market potential, and financial health. Analyze EKSO stock charts, identify the potential support and resistance levels, and utilize indicators like moving averages or volume to assess its price momentum. Identified the potential catalysts such as upcoming FDA approvals for EKSO's new product, partnerships with healthcare institutions, or positive clinical trial results which could potentially drive EKSO stock higher. The results Notice a significant increase in trading volume during pre-market hours, suggested heightened interest in EKSO stock. EKSO exhibited a 50% increase in price during pre-market trading, indicating a potential market excitement and upward momentum. The pajama trader entered EKSO at a stock price at$4 per share based on the pre-market surge and high trading volume. The pajama trader set a stop loss order at$360 to limit the potential losses if the trade turns unfavorable. The pajama trader allocated 7% of the total portfolio to EKSO, maintaining a balanced risk exposure. The pajama trader identified resistance at$5 based on the previous highs and the momentum generated by the pre-market surge aiming to take profits at this level. If the stock falls below the stock stop loss at$3.60, the pajama trader will exit the trade to minimize losses. The trade outcome. The pajama trader bought one 1,500 shares of EKSO at$4 equaling$6,000 of vivid investment. Exit the profit side. So$750 shares at$5 equaling$3,750 in revenue. The profit$3,750 minus$3,000 equals$750 in profit. Exit the loss of the other half. So$750 shares at$3.60 equaling$2,700 in revenue. The loss side of it,$2,700 minus$3,000 equals a$300 loss. The Pajama Traders trade successfully entered EKSL stock at$4 per share following the pre-market indicators and volume surge. They sold it at$5 per share, resulting in a$750 profit on$3,000. The potential loss scenario implemented a stop loss at$3.60, limiting the potential loss to$300 when the trade went against the trader. Lessons learned Importance of risk management, the significance of setting up stop losses to limit losses and position size management to diversify risk exposure. Research and analysis The necessity of thorough research, technical analysis, and staying updated on market catalyst for informed trading decisions. Adaptability to market conditions. Stressing the need to adapt strategies based on changing market conditions and indicators. And don't forget to give this a like