MarketWatch — The allure of penny stocks is simple: But trading penny stocks is also a good way to lose money. So penny-stock trading thrives. With a relatively small investment you can make a nice return if — and this is a big if — the trade works out.

Penny stock promoters make sure to attach a disclaimer to their email, Twitter, or Facebook page, and take advantage of this language to embellish and deceive. Stock touts prey on investors' inflation fears. Penny stocks and their promoters also tend to stay one step ahead of securities regulators, though just last month the Securities and Exchange Commission charged a Florida-based firm, First Resource Group LLC, with penny-stock manipulation.

Don't buy a penny stock. Even with these clear dangers, some people insist on trading the pennies. Timothy Sykes, a penny-stock expert who trades both long and short, says you must not believe the penny-stock stories that are touted in emails and on social media websites. Instead, Sykes says, focus on the profitable penny stocks with solid earnings growth and which are making week highs.

Penny stocks are sold more than bought — mostly via tips that come your way in emails and newsletters. There is nothing wrong with wanting exposure, but almost all penny newsletters make false promises about their crappy companies. Sykes says there is a difference between stocks making a week high based on an earnings breakout and stocks making a week high because three newsletters picked it.

Reading the disclaimers at the bottom of the email or newsletter, which the SEC requires them to do, will usually reveal a conflict of interest. If you make that kind of return with a penny stock, sell quickly. There is no reliable business model or accurate data, so most penny stocks are scams that are created to enrich insiders.

Penny Stocks: Proven Strategies that Work!

Sykes says large rings of the same people run promotions using different press releases and companies, including the reappearance of a notorious stock manipulator who was first convicted for an email pump-and-dump scheme when he was in high school.

Leave shorting penny stocks to the pros. Stick with stocks that trade at least , shares a day. If you trade stocks with low volume, it could be difficult to get out of your position. He also suggests that you trade penny stocks that are priced at more than 50 cents a share. Although it takes more concentration, use mental stops. I aim for 3: If I think a dollar stock has only cents upside 2: Every penny stock company wants you think it has an exciting story that will revolutionize the world.

Penny stock trader: From $1, to $1 million in three years - Dec. 16,

If you enter the penny stock arena, be cynical, do your own research, and diversify, even if a friends or family member is touting a stock. By using this site you agree to the Terms of Service , Privacy Policy , and Cookie Policy. Intraday Data provided by SIX Financial Information and subject to terms of use.

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5 Simple Steps for How to Day Trade Penny Stocks - Tradingsim

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