The popularity of trading penny stocks has risen greatly over the last decade when penny stock trader Timothy Sykes revealed his successful penny stock trading strategy that has netted him a few million dollars. He has also helped bring to the forefront all the scams that occur in the world of penny stocks and helping everyone understand how these scams work.

Sykes’s profitable trading strategy has gotten thousands of people interested in learning how to trade penny stocks. Many have generated substantial profits much faster than would have been possible by trading regular stocks.

Trading penny stocks is a lot different than trading regular stocks listed on the NASDAQ or NYSE. Penny stocks are much more volatile. Many people are attracted to trading penny stocks because quick gains can be made, but also keep in mind that losses can occur quickly as well.

If you want to get into trading penny stocks then here are 5 steps for learning how to trade penny stocks.

1. Education

Trading should be treated as a business endeavor and that requires training and education well in advance of the first trade. The first and most important step on learning how to trade penny stocks is getting educated. If you can’t dedicate the time necessary to study how penny stocks work and understand how to react to them, you will have trouble staying in the trading business.

Understanding how penny stocks trade and getting educated on how penny stocks work is the key to becoming successful at trading. Penny stocks work differently than the normal listed stock that trades on the NASDAQ or NYSE.

A great place to start on getting educated on learning how to trade penny stocks is right here. We offer a course on trading penny stocks along with a variety of other courses on trading stocks. Click here to check out our trading courses.

2. Practice

Just because you have been educated in trading penny stocks and understand how they work doesn’t make you an expert. Once you have learned some of the basics on how to trade penny stocks, the best way to learn how to trade is practice. And the best way of practicing is paper trading.

Paper trading, also called “virtual stock trading” is basically a simulated trading process in which you can practice trading without using real money. There are some websites out there along with some brokers that let you setup a free account for paper trading. Suretrader offers a demo account where you can paper trade with their platform.

It is essential that you become successful at practice trading over a period of time before trading for real. Getting the grasp of trading can take a few months and for some even longer, it all depends on the person. The purpose of paper trading is that it will help you learn how to trade and avoid the initial rookie mistakes that cause many new traders to lose money.

Make sure you consistently make successful trades before using your own hard earned money to trade with. You must be patient and disciplined during this period. This will help you to gain valuable experience by practicing trades through your demo account.

3. Develop One Trading Strategy

Developing a trading strategy links with step 2. The best thing about practice trading is that you can experiment with strategies and not lose any money! This is because when trading you are using ‘pretend’ cash. Practice accounts also have free charting tools which will enable you to get used to technical analysis.

There are many different penny stock trading strategies. You can trade penny stocks from the long side that are breaking out to the upside as a momentum trade or go with Timothy Sykes’s penny stock shorting strategy where he shorts many worthless pump and dump stocks that are on the verge of moving lower.

When you find a trading strategy that you are comfortable with then stick with that one trading strategy.

4. The Right Broker

In order to be successful in trading penny stocks you need the right broker. Not all brokers are created equally. Some brokers are geared more towards those that trade penny stocks, while others are not. One good broker to use is Suretrader. They offer a really good value, offering a commission for only $4.95 per trade.

The great thing about SureTrader is that you don’t need 25k to day trade. With just as little as $500 you can open an account and day trade with SureTrader. Since they are based in the Bahamas you don’t have to worry about the Pattern day trader (PDT) rule.

This makes it great for penny stock traders with smaller accounts with less than 25k that want to day trade and not worry about the PDT rule.

For those not familiar with the PDT rule, it is a rule in the USA imposed by the U.S. Securities and Exchange Commission (SEC). The rule prevents investors with less than $25,000 in their account from making more than three day trades in any five-day rolling period.

So, basically with Suretrader you can avoid the PDT rule. Since they are based in the Bahamas it removes many of the regulations governing traders in the USA, Canada and Europe.

5. Start real trading

One you feel confident and have opened up a brokerage account then it is time to start real trading! Making your first real trades can be nervous and same time very exciting. Trading with real money is very different than trading with practice money because you will incur real emotion when it involves real money. When first starting to trade it is best not to risk too much and stick with small share sizes.

It’s good for you that you try to execute same strategies which you practicing while demo trading. Mastering your emotions and money management is key to your success of learning how to trading penny stocks.