Making Sense of OTC Markets

What is a day trader made of? Day traders need to be smart and resourceful, but, more than anything else, they need to keep moving forward. They need to be able to educate themselves about the market, new strategies for making profits and new techniques to manage risk. Managing risk and being able to control one’s own greed makes a lot of sense. It is an essential part of being a solid day trader.

Trading in the OTC markets can be a lucrative practice, if you are both lucky and good. Risk management takes on a new tenor here, where you begin to see just how important it really is. The OTC markets, as currently defined, are the over the counter stocks, which are companies that do not meet the requirements for being listing on a significant exchange like the New York Stock Exchange or NASDAQ. They can be ripe targets for fraud or manipulation. Taking a plunge into the OTC markets can mean drowning in bad trades.

But day traders are always looking for opportunities. So the OTC markets are always attracting traders with a healthy respect for risk and an appetite for profits. This is not the place for buy and hold strategies. You buy and sell quick. The companies that sell their shares on OTC markets do not have to face the same level of scrutiny that larger companies do. So the looser reporting structure means that there will not be a bunch of research to do on these managers anyway.

As a day trader, you still need to be wary of pump and dump schemes. Do your research, seek out the trends and technical indicators and always be wary of the cable news shouters that you see every day. Trust the market, don’t trust the companies themselves.

Because companies on the OTC markets have low market caps and are generally cheaper to mess with, the chance for manipulation of the stock price is high. You always need to have your own understanding of why a price is about to jump and why. This goes back to the idea that day traders need to educate themselves without bias. Learn the best strategies and techniques and then put in the screentime.

Practice as a day trader can be very expensive. When you are starting out, it is tempting to put some of your cash out there and play around. But the best way to become a good trader is to spend time as a paper trader. Look for simulated trading environments that will give you the best trading practice out there. Spend time learning how to manage risk in real time at the speed of the regular market, without losing your actual nest egg. Practice makes profits. Eventually.

Because OTC markets are set up differently than other markets it may not be easy to see where the advantages are. That is what the experience of screen time can bring you. The chance to see where the nooks and crannies of a market are. Once you can see the big picture, you can start following trends and figuring out how to make money.

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