For the average person penny stocks are a risky proposition. Fortunately when you use a backtested trading strategy, locating when to buy penny stocks is quite simple, and will help to reduce the risk tremendously. There are only specific situations where you have a higher chance of success on any given penny stock trade. You do not want to pass up these opportunities or else you could end up missing out on the easy money. It is these "free money trades" which will make your month. You need large winners to help offset smaller losing trades which are unavoidable in this business. Without these your small losses could eventually build up and reduce or eliminate your gains when you buy penny stocks. Losing trades are a very important part of being a profitable trader because accepting risk is the only way to experience above average returns. You cannot earn above average returns by putting your money into a money market account or bonds (except high yield bonds). Stocks, options, commodities, are currencies, are just a few types of "risky assets" where the potential for large returns is enormous.
Fortunately when you buy penny stocks using a tested trading system you will right more often than and therefore won't have to deal with many big losses. The downside is the number of opportunities is reduced because not as many penny stocks are liquid enough. None the less you can easily counteract this by taking larger size positions. This makes even more sense since penny stocks are very volatile and your level of risk can increase tremendously too long. Since I take a large position when I buy penny stocks I don't have to hold a penny for very long in order to have it reach my target. For example if I were to take a smaller position pf $500 I may have to hold on to a penny stock for a 100% profit. The probability of earning such a large profit over and over again is very low, but when my position is larger, for example $6000, I usually only need a 10-20% return to get the same size profit.
During high volumne periods you can buy penny stocks without having your orders scrutinized by the market makers. When the trading volume of a penny stock is lower the market makers will easily be able to manipulate stocks but during these specific periods of time it is possible to get the upper hand. Despite the fact that the upside is huge, you should not be greedy because greed will humble even the best penny stock traders. You need to take a profit that will be large enough to cover any previous small losses, but you must find the optimal entry and exit points which will you to do this. A real trading system plays a major part in this since it shows what a stock has done previously, and therefore what it most likely will do in the future. people say past performance is not indicative of future performance but in the stock market this is not the case.