Managing Risks in OTC Markets

Risk is always going to be a part of day trading. But you can’t take on too much risk, because you have no idea where it will end. If you jump into the OTC markets in order to day trade with not enough experience, you will get burned. That stands for over the counter markets, where unlisted stocks are traded.

Day traders need to be friends with risk. It will always be there, each day that you are day trading, and you must acclimate yourself to the risk if you are going to be successful. When you trade in OTC markets it is much harder to control the risk and make money. That is because the companies that trade on OTC markets are not subject to the same kind of disclosure that larger companies on the NYSE and NASDAQ are. The rules are more stringent for the big companies.

What that means is that you should never listen to the management of the companies that trade on OTC markets. And you should be skeptical of newsletters and other media that tout stocks on the OTC markets as big winners. Those stocks are likely part of pump-and-dump schemes where market makers buy up a lot of shares of a particular stock and then push the company in a lot of avenues to get publicity and drive the price up.

OTC markets are best left to veteran traders that have been around the block. When you have logged the screentime that gives you enough experience to spot trends as they happen and react appropriately, you can take a shot at OTC markets. Before that, you need to start slow and learn your stuff before getting into the market.

Start out by finding a day trading education site that is equipped to teach you day trading strategy that is tailored to the market. Learning momentum day trading techniques like finding gappers and targeting them takes study and hard work. Then you need to able to put together all that knowledge in a way that makes sense for the market.

So you make your way over to a chat room, to learn the nuances of the day to day market and how to approach trading. The best chat rooms are ones that allow you to look over the shoulder of the veteran trader as he is making moves and assessing the stocks in front of him. That is where you make headway in understanding how to apply your strategies to the actual market. Then there is the next step.

That is where paper trading comes in. To be the best day trader you can be, you have to take your time and practice in a virtual environment that allows you to trade virtual currency. That is a simulated market that works just like the real thing and allows you to make trades and manage risk, just like the real world, but without risking any actual money. When you are just starting out, you want to be able to prove that you can make a profit in paper trading before you move on to day trading.

9 months ago

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