Traders have given them many names, like bulletin board stocks, micro caps, penny stocks, and others. The attraction to them, however, is all built around the same premise ” that the market is on the verge of deciding a particular company is the next big thing. There are a few lessons to keep in mind about trading small cap stocks though.

Theres no such thing as an investor acquiring too much knowledge for his or here own good, but this five-pronged strategy may be effective just because of its simplicity.

First, the very best small cap traders tend to at least do one important task very well ” they can differentiate a short-term trade and a long-term investment. Mechanically both trades may start and end the same way. Mixing and matching the underlying philosophies, however, often leads to frustration.

Second, penny stock traders and investors should accept the fact that smaller company stocks are easier to drive higher or lower than large company stocks. In fact, a large institutional player may have the ability to very quickly buy or sell the majority of a small companys float. Traders just need to be prepared to see rapid swings when that happens.

The third concept small cap speculators need to accept is simply that these stocks dont always move towards appropriate valuations the same way large caps do. Large companies have a massive audience, and errant valuations are noticed pretty quickly. Small and micro caps, on the other hand, can rest sit at inappropriate for long periods of time. Thats why these traders are as concerned about charts as much as they are values.

The fourth concept micro cap traders need to be comfortable with is that much of the gains from these stocks can be created even before the company turns a profit. Most everyone wants to invest in a worthy concept, even if its not yet creating revenue. However, if enough traders are piling into the same pre-revenue stock based only on potential, it can still drive the stock higher. In other words, hype is a factor worth mentally incorporating into the stock selection process.

The fifth characteristic most successful bulletin board stock traders have is the willingness to take profits. Thats not to say these speculators lock down a gain every time they can, as the longer you can hold a stock the more money you can make. But, too many traders never realize that losing big is far worse than not winning big with absolutely every single trade.

By this point one overarching message should be clear trading micro caps profitably isnt so much a matter of intelligence as it is a matter of discipline and patience. While intelligence cant be learned or taught, everyone has the aptitude for discipline and patience.

The point is, lots of traders are reaping huge rewards with penny stocks. You can be one of them with just a little bit of focus.