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A High Risk High Reward Stock Strategy

Updated on November 25, 2011

Beware of the Risk!

In the title and sub-title of this Hub I warn of the high risk.  While I believe that you will see there is a very easy way of managing risk, I want to emphasize that this is a high risk strategy, but the returns can be awesome.

As most stock traders know, penny (and sub-penny) stocks are highly risky.  However, if you pick the right one you can make BIG bucks on it.  However, getting to the right one may take awhile.  Because of the high reward potential we don't want to leave the opportunity in fear of the potential risk.  Let's just create a strategy that will manage both.

One of the big benefits to penny stocks is that they are CHEAP!  The most recent position I entered was for .0018 a share.  That is almost (not quite) 1/5 of a penny.  You can buy a whole lot of shares at that price without spending much money.

So how can we take advantage of this volatile market without putting ourselves at risk.  The first thing we must do is allocate the amount of money we will spend on this strategy.  This should be a relatively small amount.  I realize that small is a relative term, but this strategy should not take very much money at all.  Maybe putting only $500 to $1,000 at risk should be sufficient.

I am going to use my most recent purchase as an example.  I am not advocating you buy this stock, it is just for illustration purposes, but you can check on it and see if my strategy is working on this one.  The symbol is IDCN, which I stated I bought at .0018 a share.  I purchased 100,000 shares and the commission I paid was $50.  My total cost of this trade is $230.00 therefore my total at risk capital is only $230.00.  If I loose all of my money I will not be ruined.

Why did I buy this stock?  I believe that it has the potential to get out of the sub-penny classification into whole cents.  This is an exploration company so if they find some gold, gas, or oil there stock could actually become worth something.

It cost me $50 commission to get into this stock and will cost me another $50 to get out, but at .0038 I can sell 75,000 shares and have my money back.  This is my goal, get out of the trade at a break even.  If you didn't catch the math I bought 100,000 and sold 75,000 shares.  But now I own 25,000 shares absolutely free.

If I can do this ten times in a year (shares will vary depending on price) at the end of the year I will own 25,000 shares in ten companies that I think have a potential of becoming something.  If only one of those ten actually do something and eventually become worth $1,000 I have a huge profit with very nothing into the trade.

The key to making this strategy work is finding good potential candidates that have  volume.  There are many free penny stock newsletters that will give you more ideas then you can trade.  What you don't want to do is fall for the sales pitch because every potential penny stock you read about you will think is the next google.  You want price movement early on, so focus on stocks that sound has a potential market, has volume, and the price has a pretty decent swing.  Then do a little calculations as I have done above.  If I buy this many it will cost me "x" and the price needs to go to "X" to sell a portion of my holding leaving me with a sufficient number of shares to make a future profit.

Now it's just a waiting game.  Don't get impatient and don't get anxious if some go out of business.  They didn't cost you anything so just wait it out.  If the price starts moving start taking profits at acceptable levels.

Your goal here is to be in the trade for free.  Don't allow this part of the strategy to take too long.  You want in and out as quickly as possible.  If it seems like your stock is just hanging around, get out with a small loss and move on to the next one.  Happy Trading!


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    • The Rising Glory profile image

      The Rising Glory 7 years ago from California

      Just for the record this trade worked out as described. I purchased 100,000 shares and was able to sell 75,000. I know own 25,000 for free. While the profit on the 25,000 is basically nil at this time there is always potential. The most recent stock I used this strategy on was AVOE. I was able to sell within 2 days to enter a free position.