Today I’m going to focus on what the ideal amount of capital is to start trading in penny stocks.
What to Do as a Beginner
If you are a complete beginner and you don’t know what to look for, the first thing I would suggest doing is searching “What are penny stocks?” in Google. You can also visit my YouTube channel and search for “What things can I pick up?”. Both things will give you a general idea of what penny stock is. After getting a general idea of what penny stock is, you need to figure out how much you are willing to invest in learning more. When people want to get started in this industry, they usually think something like, “I will only invest $500 or $1,000.” That’s not going to work. If you don’t know about technical analysis or fundamental analysis or what you’re buying into, trading is worse than a gambling at a casino; you’ll likely lose on almost all your capital. When I first started, I looked into other people, other gurus and mentors. I knew I might run into some scammers and people trying to make a quick buck but it’s good to get out there and find a mentor so you can learn what the real strategy is. It’s good to have a community to dive into to find the real strategies of what works and what doesn’t. Now, if you want to learn how to refine these strategies, you should check out my other videos and blog posts.
How Much to Invest in Your Education
To get in the rhythm of trading and to be consistently profitable will take anywhere from 6 months to a year. I would recommend starting with at least $20,000 and investing half the money into education, learning technical analysis fundamentals, watching people live trade, or subscribing to educational services. You will boost your chances of profitability much quicker by learning the market. If you don’t take the time to learn about trading, you’ll get emotional very, very quickly. Once you start getting emotional you will lose control, and once you lose control you lose your account. Most people blow up in that way because they refuse to really listen to others.
Trading in the $200,000-300,000 Range
20K is a decent amount to start with because I started with $27,000 and spent half the money on education and the other half went into my trading account. Now, if you’re under PDT, you can split your funds into multiple brokers, which means you will have more trades throughout the week. Right now, I don’t really trade that much, I place between 3-5 trades each week. If you have a decent size account, I would say the maximum you should place in your account is between $200,000-300,000. I wouldn’t really suggest going over that in one trade. Penny stock lend is very small compared to the futures or options market, so the more you size in the more you will affect the market especially on the low floats. If you are sizing too big in short positions and on low float you will easily get blown out if the stock is going in the opposite direction. Another reason you could get blown out is because of the volatility of the low float that could cause you to lose much more than you might have anticipated.
Trading in the $10 Million-30 Million Range
In a regular float, the average volume we typically trade is between $10 million and $30 million. If it’s over $30 million, it’s considered to be crowded and I would suggest staying away from that. Now, within that range – 10 million to 30 million – the maximum size you can safely invest into each trade is $50,000-100,000. For me personally, I wouldn’t want to size in if the stock doesn’t have very good odds. In each trade, if the stock is trading at a certain volume, there are correlations between volume and how much capital you can put into a trade, so you have to be really careful with the volume capitals. That is why I do not want to size into over $30,000. I would also suggest building a spreadsheet to find out what the ratio and volume is. If the volume is bigger, you can size in more and not even the maximum goes to 30 million, because if it gets super crowded you can’t really predict where the rushing is most of the time. For me, 30,000 would be the best for a decent trade. Now, if there are high odds or a perfect set up, I will size in 100 or 200 thousand or more. Never do more than 300,000 because I think that is very, very risky in the penny lend.