Wondering how to trade penny stocks? Penny stocks are an excellent option for traders who want to invest with just $100. The popularity of penny stock trading has skyrocketed because penny stocks are ‘designed’ for investors who have little initial capital. In this step-by-step guide, you will learn how to trade penny stocks for beginners.
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Jordan Belfort, also known as the ‘Wolf of Wall Street’, is a stockbroker who makes his name trading in penny stocks, which has made him millions in profit. Now, his name has a negative connotation because he was convicted in 1999 of manipulating the stock market and running a pot for a penny.
We are not here to promote scam stocks, we just want to show you what you can accomplish if you follow our penny stocks for beginners guide.
Before you risk any of your hard earned money, let’s learn what penny stocks are and how you can buy them. At the end of this manual, you will know the exact trading tips, methods and strategies to successfully trade penny stocks.
What are Penny Stocks?
What are penny stocks? According to the US Securities and Exchange Commission (SEC), penny stocks are stocks in companies that trade below $5 five dollars. In the past, only stocks under $1 were considered penny stocks. Penny stocks are also called “pink skin stocks”.
Usually, penny stock companies operate outside of the major exchanges such as NYSE or NASDAQ. It is traded over the counter. However, if the price of a penny is consistently between $1 and $5 dollars per share, it can be listed on NYSE.
Penny Stock Examples:
If you want to learn more about the OTC market, visit Over the Counter Trading – How the Whales Trade.
The second characteristic of penny stocks is that they have a small market capitalization. These cheap penny stocks generally have a market capitalization of less than $300 million or $50 million.
Risks and Benefits of Trading Penny Stocks
There are several advantages to trading penny stocks. Because these stocks are priced below $5, there is limited risk. The most you can lose is $5. However, by choosing the right stocks, you have access to an unlimited upside. Although rare, it is not unheard of for stocks to go from $1 to $100 within a month.
Penny stock price movements are also usually more volatile than normal stocks. For day traders, this means that within a given trading period there will be multiple opportunities for profit. Even if a share only moves from $0.20 to $0.30, that’s still a 50% increase in value.
A further advantage of trading penny stocks is that, unlike the stocks listed on the S&P 500, penny stocks are loosely correlated with the market as a whole. Even if the recession is going into a recession, there will still be more penny stocks on the rise.
There are downsides to trading penny stocks. Many of these businesses have very little (or even negative) value, which is why they are so low initially. The majority of penny stocks will remain penny stocks for life. Furthermore, because they are often traded over the counter and with little supervision, these stocks are prime targets for pump and dump or insider trading systems. If managed correctly, trading penny stocks can still be quite profitable.
Let’s explore how you can find penny stocks using this smart, simple strategy.
How Do I Find Penny Stocks?
To find a penny stock, you need to use a penny stock scanner. A scanner will help you find penny stock hidden from the general public.
Finviz.com stock screener is our favorite free penny stock screener. This is by far the easiest way to find penny stocks.
A good pen provider allows you to search for stocks under $5 or for stocks under $1 using custom parameters. You can find the best penny stocks to buy for 2019 that meet your specific parameters and filters. If you are just starting to learn how to trade penny stocks, don’t be afraid to test different filters with the online stock screen tool. This can lead to a powerful penny stock list to buy.
If you’re short on ingenuity, try looking for the most active penny stocks in the premarket. This will give you a list for day trading in penny stocks.
Remember – A lack of research can lead you to invest in the worst pump and dump scams. Learning how to make money trading penny stocks comes down to time and effort. There is no secret formula for finding stocks before a prior rally. But finding the right penny stocks can definitely improve your chances of success.
Now that you’ve learned how to find the hottest penny stocks, the next big question is where to buy penny stocks?
See below:
Where Can I Buy Penny Stocks?
Most penny stocks are listed on the OTCBB (on-the-counter bulletin board), but some can also be found on the regular stock exchanges. Professional traders on Wall Street refer to penny stocks as over-the-counter stocks.
There are more than 10,000 securities listed on the OTCBB. Investors can trade and access these pink skin stocks via an online stockbroker.
Since OTC stocks are very volatile and illiquid, we only recommend investing in penny stocks listed on NYSE and NASDAQ.
How Can You Buy Penny Stocks?
See below:
How Can I Buy Penny Stocks?
The best way to buy penny stocks is to go through a regulated stockbroker. With a broker, you get access to the market with leverage, so you can start trading quickly. Besides a broker used, two more things are needed to learn how to buy penny stocks:
- Money to buy the penny stocks.
- A Penny Stock Trading Strategy to Help You Pick the Best Penny Stocks.
Try to avoid buying penny stocks directly from dealers who call you to offer you investment opportunities. Try investigating low-commission brokers that offer OTC stocks and penny stocks on the NYSE or NASDAQ. You want a wide variety of options so you can find the stocks that perform the best.
Here are the main brokers we recommend:
- Fidelity Investments – $4.95 per trade
- Charles Schwab – $4.95 per trade
- eOption – $3.00 per trade
- TD Ameritrade – $6.95 per trade
- Interactive Brokers – $0.005 per trade
- TradeStation – $5 per trade
What is the difference between OTC and NYSE / NASDAQ Penny Stocks?
Penny stocks come in two different forms, pink sheet stocks and exchange stocks. Penny stocks with ‘Pink Pink’ are traded. “Exchange” penny stocks are still under $5, but can be seen on a major exchange like the NYSE or NASDAQ. Blockbuster is an excellent example of a stock that eventually achieved “penny stock” status.
Usually, when people refer to penny stocks, they are probably referring to stocks that are traded over the counter. These stocks usually have very small market capitalizations and the market itself is very lightly regulated. Although the real pink skin stocks can provide profitable returns, they are generally considered riskier than those listed on the major exchanges.
Now that you know about the two different types of penny stocks, the next step is to learn how to trade.
See below:
How Can You Trade Penny Stocks?
Ever wondered how to trade penny stocks?
Anyone can learn how to trade penny stocks for free. There are no hidden secrets because the game on Wall Street never changes. Penny stocks are characterized by high volatility. It can go from a few cents to a few dollars very quickly.
You can make a lot of money from volatility, but you can also lose a lot of money.
Most people who trade penny stocks tend to lose money because they trade incorrectly or use a penny stock strategy that is not suitable for their type of trading environment. This is what makes penny stocks a high-risk, high-return investment.
At the end of the day, you have to keep in mind that 85% of active traders lose money trading the stock market.
However, if you learn how to trade penny stocks the right way, you can tilt the odds in your favor and be part of the 15% of active traders who day trade penny stocks profitably.
All you need to do is learn how to buy penny stocks and find potential winners before they go up.
There are only a handful of hot penny stocks that make big moves every day. Not all stocks under $5 are penny stocks. The trick is to learn which penny stocks you can buy pre-spike. We developed a penny stock trading strategy that uses some trading rules we discovered 20 years ago.
If you want to become a better penny stock trader, try learning how to trade penny stocks using our methodology.
See below:
The Best Penny Stock Strategy
The best strategy for trading a penny is divided into three steps: scan, search and strike. The goal is to identify when a penny stock is rising. This is very important for penny stock traders. Not even the best trading rules in the world can tell you what every penny will do in every situation.
However, if you use our ‘secret sauce’ you can predict with a high degree of accuracy when a penny stock is about to get pumped.
Follow our three S’s rule if you want to learn how to trade penny stocks:
- Search for the best penny stock with our 6 filters.
- Look for a technical pattern.
- Strike using a market order.
Step # 1: Scan
Use a penny finder to find hot penny stocks. We prefer to use the free inventory scanner offered by Finviz. Customize the penny stock screener to match our parameters and filters. This will give you an edge in the market.
Penny Stocks Parameters for Finding the Best Penny Stocks:
- Market cap: between $50 million and $300 million
- Target price: 5% Above price
- Current volume: over 1 million
- Country: USA
- Price: Under $5
- Technical: price above the 200 day simple moving average
List of Penny Stocks to Buy:
If you use our penny stock filters, you have the potential to find penny stocks that are going to turn a big profit. As you can see, the penny stock screener only displays a handful of examples of penny stocks.
Once you have a pen inventory list, it’s time to look for a technical pattern.
See below:
Step #2: Search
If the pen provider only displays a handful of stocks, we all want to look through and see which one offers the most technical pattern. If you are an experienced technical trader, you can use your skills to choose the best pattern.
After looking at our watch list, the pin stock UUUU (Energy Fuels INC) offers the clearest price pattern.
We manage to find a neat rectangle pattern developing on the chart of the hotpenny stock. You cannot trade wrong if you have a clear pattern.
After we’ve picked the penny stocks that show the clearest price action, it’s time to pull the trigger.
See below:
Step #3: Striking
For an entry, we are waiting for our rectangle pattern to be confirmed. Once we break above the rectangle resistance line, we pull the trigger and buy the UUUU penny stock.
The rectangle pattern is a super easy chart pattern to trade because it also gives you a very precise entry point and risk point.
The key to trading a breakout of a chart pattern is to also pick up the volume as smart money pumps the penny stock.
Best Penny Stocks to Invest in 2019
The list of the best penny stocks to invest in is constantly changing. Most trends in stock trading unfold quickly. However, here is a list of the best penny stocks with the biggest daily gains for July 2019:
- SG Blocks (increase of 57.77%)
- FTE Networks Inc. (increase of 22.44%)
- Synthesis energy systems (increase of 19.48%)
- Innodata (17.39% increase)
- Taronis Technologies (increase of 16.28%)
- Iconix Brand Group (increase of 14.71%)
- Note Holdings (12.20% increase)
- Sierra Oncology (increase of 11.04%)
Pro Tip – To reduce the risk associated with any given stock, you may want to consider diversifying your investments and buying several stocks at once.
Final Thoughts – How to Trade Penny Stocks
Penny stocks offer opportunities that are independent of how the overall market is doing. Penny stock trading can be an important part of a diversified stock portfolio. But before you put your hard-earned money to work, find penny stocks that are more tradable and liquid than average.
Penny stocks are very speculative in nature, but this market offers you a probability of making money if you learn how to trade correctly. Proper preparation, research and investigation are necessary to be successful. Always try to do your due diligence, and try to edit our suggested penny stock scanner settings for best results. We hope you enjoyed this beginner’s guide to penny stocks.
Thanks for reading!