Paper Trading I
If you are not sure which penny stocks to invest in or may be you simply want to learn how to trade penny stock or may be you want to test a new methodology, then this paper trading exercise is for you. Paper trading means that instead of using real money, you would use paper money to trade on real penny stocks. It includes all the real steps that you would take and the fees that you would pay and may be even the strategies you would employ had you really invested in penny stocks. Paper trading is a good way to know what really goes on and how much you could possibly earn in penny stocks. Before you start paper trading you must decide on the following parameters: the total �cash’ you will use, the time frame of your paper trading, the criteria in choosing the penny stocks to trade in, the rules in trading prices, your methods in monitoring and tracking methods.
To start off, you should decide how much paper money you are willing to use. Remember to invest enough money for you to be able to trade but at the same time not too much so as to force you to use your money wisely in selecting which penny stocks to invest in. It has been recommended that your paper money be five to ten times the value of the real money that you be investing. It would be ideal that your imaginary money be between $10,000 and $50,000.
You should also decide on the time frame of your mock penny stock trading. The purpose of the time frame is for you to see and monitor how your penny stock investment is faring, whether you are up or down. It is advisable that you paper trade for a couple of months before using real money.
Because you have only a limited supply of money you will want to spend it wisely on your chosen penny stocks. That is why it would be good to determine what your criteria are in choosing and screening stocks. Are you choosing penny stocks based on their prices or on their market or may be from a particular sector that you are interested in like pharmaceutical or technology industry. If you are just starting and have no idea which penny stock you want then hopefully you will learn which the best penny stocks are after the paper trading exercise.
Deciding on the trading prices of your penny stocks per trading day is also crucial. Penny stock prices fluctuate and you may have no idea how much your penny stock is worth at the day you want to buy it so you must decide how you will determine penny stock prices. The best way to determine penny stock prices is to check the real time price of the penny stocks. If you decide to buy a penny stock at this moment then you could list down how much that penny stock is worth now. Or you could decide to use the penny stock prices at the end of the day. This is discouraged as this method is unrealistic. You can also put price limits on your penny stocks. For example, you can say that you will buy penny stock X if it reaches $1.50 and below. At the end of the day you could check if penny stock X did reach that limit. Otherwise you could record it as an attempt and try again.