Today I want to tell you guys about one of the most important metrics that you need to keep an eye on when you're trading penny stocks.
There's a lot of horror stories with people who get this wrong.
The characteristic, or factor, that I am talking about is volume.
Volume is a super, super important metric when you're looking to trade penny stocks or any stocks for that matter.
Volume determines whether or not as well as how fast you'll be able to get in and out of your positions.
First of all, it's important to understand that when you buy a certain stock, you have to put in an order request.
So, you put in either a market order or limit order and you have to wait for your order to be fulfilled.
This means that if you want to buy a hundred shares of Apple tomorrow, you don’t just put push a button and get all the shares.
It's almost that easy, but you still have to wait for a seller to come into the market who is able to sell you those shares.
There's also a very good chance that you don't get your order filled at all depending on the type of order you input.
In that scenario, whether you get your order filled all depends on volume because this is the number of shares that are being traded of that specific stock on a daily basis.
This goes for both buys and sells.
A lot of the times what ends up happening, unfortunately, for new traders, is that they forget to look at this important factor.
A lot of different penny stocks that have large spreads.
The spread is the difference between the buying price and the selling price of any given stock.
If it's something I can buy at $5 then I can only sell that at $4. 99, and the market is happening at that segmentation of that one penny.
But sometimes, especially for stocks that don't have volume, you'll find larger spreads because not enough people are putting in orders, which means that there's not enough supply of that stock.
Let me paint you a scenario where that gets really, really difficult.
Let’s say you're trading stock and it's trading at about $1.
You're holding it and overnight there's some great news about the company and it goes up to $3 a share.
We can imagine that you've invested $1,000.
When you log into your account, you’ll see $2,000 in unrealized profit.
You're ready to sell and go ahead and put the sell order in, and you think you're going to cash out and walk away with that money.
But while that's happening, the stock is slowly fluttering down and down.
It might be pumping down or it might just be an oversubscribed stock, but whatever scenario, you're getting worried because you're trying to sell this stock and you have almost $2,000 in profit, but it's still not solid.
The reason that happens is that you probably were trading a stock with a low volume.
At In Penny Stock, we teach people to only trade stocks that have a volume of more than a hundred thousand daily.
You don't want to get trapped in that scenario.
That happens all too often where there's not enough liquidity in order for you to get in and out of your trades.
So that's why volume is important.
Make sure that any stock you trade has at least a hundred thousand shares and that should be comfortable enough for you to get in and out of positions without much difficulty.