Penny Stock Scalping

As part of our Penny Stock Investing Strategy Center, this page will explore Scalping. We will define scalping, explain its use, and show you its pros and cons when working with penny stocks. Please be sure to check out our other trading strategy pages. With our help you will be on course to finding your niche in penny stock trading!

Scalping

What is Scalping?

Scalping is a strategy in which traders make several trades a day to generate small profits on a stock that isn’t moving, or in other words is trading sideways. The scalper uses the bid/ask spread to their advantage. By buying shares at the bid – or close to it – the scalper can turn around and sell at the ask to make a miniscule profit. If this small profit can be repeated several times, or with a large number of shares, the total profit can add up to an attractive amount. This can easily be considered as day trading, although not all day trading is considered scalping. With penny stocks this strategy can sometimes work well, however on most stocks it doesn’t have a chance. Take a look at the pros and cons of penny stock scalping below to see why:

Scalping Pros:

Penny stocks often have a large percentage spread which can lead to decent profits.

Ex. - Stocks with a price of .005+ have a quoted spread of at least .0005, a 10% spread.

Penny stocks will often trade sideways after settling from a big move, or while trying to break a resistance level.
By buying at the bid, and quickly selling at the ask, you get in at the lowest price and reduce risk by holding shares for a short period of time.

Scalping Cons:

Penny stocks can have very anemic volume, making it difficult to buy at the bid and sell at the ask .
You are working against the Market Makers, and we all know who makes money first…
Due to the small profits, and high risk of penny stocks. Other strategies are more suitable for most penny stocks.

Please make any suggestions for additions/changes here.

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