Over-the-counter, or OTC, stocks offer an excellent opportunity to trade them at relatively high frequencies. That is, because many “penny” (OTC) stocks are volatile (i.e. they move up and down in price at relatively greater intervals across a wider price price than their major index brethren), there are more opportunities to trade them for a potential profit over the course of even a single trading day, though it’s often the case that multiple days may be needed to realize truly significant gains from a particular stock.
Effective day trading requires time and attention.
To truly day trade in penny stocks, it’s often necessary to follow several or more of them at a time so that entry (“buy”) and exit (“sell”) points on at least a few of them can be devised for the day. This is necessary because many OTC stocks tend to trade very lightly, if at all, over the course of single or multiple trading days. Therefore, identify a number of heavily traded stocks (there are OTC stocks that trade in the multiple tens of millions of shares per day, making them good candidates for possible day trading opportunities) to add to a day trading portfolio as well.
A good general rule of thumb when it comes to a trading portfolio, or “watch list” (a term in common use among OTC day traders), is to trade stock in companies that have a daily trading volume of at least 50,000 shares per day and that are relatively volatile in terms of the trading price (they should see enough of a price move, up and down, to justify buying in at one point and selling out at another, higher, point and so on). Rather than just look at a stock’s one-day or one-week trading volume per day it’s probably best to look over a bit longer time frame of from 1 to 6 months.
It’s also often the case that with OTC stocks, trading volume may suddenly take off but just as suddenly dry up, leaving one with a strong position in a stock that nobody’s buying at the moment, thus tying up precious capital that could be put to better use in another stock. The whole idea behind devising a good day trading program, after all, is to be able to realize a series of “buy low, sell high” profits of one size or another over a day, or several day, trading cycle. Sitting on a stock that’s doing nothing is counterproductive and a poor use of capital when it comes to day trading.
Lastly, always remember that day trading — because it will involve taking positions or even just monitoring many stocks at one time — will require a great deal of time, attention and even a relatively healthy initial buy-in, in terms of money to invest. Though opinion varies, plan on from $2,000 to $4,000 for a good initial capitalization stake for OTC day trading activities. Plan, as well, on having to check on stock prices very quickly, often at a moment’s notice, which means having access to real-time, up-to-the-minute stock quotes. Such streaming access will allow for almost-instant entries and exits into and away from a stock at the right prices. Of course, much of the above will require the services of a stock brokerage, which is another story for another time.
