Wondering how to trade penny stocks? Penny stock is a great option for traders looking to start investing with as little as $100. The popularity of penny stock trading has skyrocketed because penny stocks are designed by investors with little start-up 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 made a name for himself in coin stock trading, making him millions in profits. Now, his name has a negative connotation because in 1999 he was convicted of manipulating the stock market and running a penny stock boiler room.
We are not here to promote penny stock scams, we just want to show you what can be achieved if you follow our penny stocks for beginners guide.
Before you risk any of your hard-earned money, learn what penny stocks are and how you can buy them. By the end of this guide, you will know the correct trading tips, methods and strategies to successfully trade penny stocks.
What is Penny Stock?
What are penny stocks? According to the U.S. Securities and Exchange Commission (SEC), penny stocks are shares in companies that trade under $5 five dollars . In the past, only stocks under $1 were considered penny stocks. Penny stock is also known as pink sheet stock.
Typically, penny stock companies operate outside of major exchanges such as the NYSE or NASDAQ. They are traded over the counter . However, if the price of a penny stock is consistently between $1 and $5 per share, it may be listed on the NYSE.
Penny stock example:
If you want to learn more about the OTC market, please visit Trading Over the counter – Whale Trading .
The second characteristic of penny stocks is that they have a small market cap. These cheap penny stocks typically have a market cap of less than $300 million or $50 million.
Risks and benefits of trading Penny . stocks
There are many benefits of trading penny stocks. Because these stocks are priced under $5, there is limited risk. The maximum you can lose is $5. However, by choosing the right stock, you gain access to an unlimited upside. While they are rare, instances of stocks going from $1 to $100 within a month are not unheard of.
Penny’s stock price performance is also often more volatile than the average stock. For day traders, this means that there will be plenty of opportunities to profit within a given trading period. Even if a stock only goes from $0.20 to $0.30, this is still a 50% gain in value.
Another benefit of trading penny stocks is that, unlike stocks listed on the S&P 500, penny stocks have a loose correlation to the market as a whole. Even if the economy as a whole is going through a recession, there will still be many penny stocks that will increase in value.
There are restrictions to trading penny stocks. Many of these companies have very little (or even negative), which is why they are priced so low to start with. The majority of penny stocks will remain penny stocks for life. Furthermore, as they are often traded over the counter and with little oversight, these stocks are prime targets for pump and dump or insider trading schemes. However, when managed correctly, trading penny stocks can still be quite profitable.
Let’s dive into how to find penny stocks with this smart, simple strategy.
How do I find Penny stock?
To find penny stocks you need to use penny stock scanner. A scanner will help you find hot penny stocks that are hidden from the general public’s attention.
Finviz.com stock screener is our favorite free penny stock screener. This is the easiest way to find penny stocks.
A good penny stock screener will let you scan 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’re just starting to learn how to trade penny stocks, don’t be afraid to play with an online stock screener that tests different filters. This can lead to a strong list of penny stocks to buy.
If you lack dexterity, try scanning the most active penny stocks in premarketing. This will give you a list for the day-trading penny stocks.
Remember – A lack of research can lead you to invest in some of the worst scams. Learn how to make money trading penny stocks going down takes time and effort. There is no secret formula for finding stocks before a spike. But, learning how to find 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 to buy Penny stock?
Most penny stocks are listed on the OTCBB (over-the-counter bulletin board), however, some of them can also be found on regular stock exchanges. Professional traders on Wall Street call penny stocks an over-the-counter stock.
There are over 10,000 securities listed on the OTCBB. Investors can trade and access these pink board stocks through an online stockbroker.
Because OTC stocks are volatile and illiquid, we recommend investing only in penny stocks listed on the NYSE and NASDAQ.
So, how do you buy penny stocks ?
See below:
How to buy Penny stock?
The best way to buy penny stocks is through a regulated stockbroker. The broker will help you access the market with leverage, so you can start trading quickly. Besides a manual broker, learning how to buy penny stocks requires two more things:
- Money to buy penny stocks.
- A penny stock trading strategy to help you choose the best penny stocks.
Try to avoid buying penny stocks directly from dealers who call you to create investment opportunities for you. Try researching low commission stockbrokers that offer OTC stocks and penny stocks listed on the NYSE or NASDAQ. You’ll want to have a wide selection, so you can find the best performing stocks.
Here are the top brokers we recommend:
- Invest Honesty – $4.95 per trade
- Charles Schwab – $4.95 per transaction
- eOption – $3.00 per trade
- TD Ameritrade – $6.95 per trade
- Interactive Broker- $0.005 per trade
- TradeStation – $5 per trade
What is the difference between OTC and NYSE/NASDAQ Penny shares?
Penny stocks come in two different forms, pink stocks and penny stocks. Shares of Pink Pink The penny is traded over the counter. Cryptocurrency Exchanges Penny stocks are still under $5 but are featured on a major exchange like the NYSE or NASDAQ. Blockbuster is a prime example of a stock exchange that eventually achieved penny stock status.
Usually, when people refer to penny stocks, they’re probably referring to stocks that are traded over the counter. These stocks typically have very small market caps and the market itself is very lightly regulated. While the right pinkboard stocks can offer profitable returns, they are generally considered riskier than stocks listed on 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 to Trade Penny Stocks?
Ever wondered how to trade penny stocks?
Anyone can learn the ropes on 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 great volatility. They can go from a few cents per share up 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 trading strategy that is not suitable for their type of trading environment. That’s what makes penny stocks such a high-risk, high-return investment.
At the end of the day, you must remember that 85% of active traders lose money trading in the stock market.
However, if you learn how to trade penny stocks properly, you can misunderstand the odds in favor and be part of the 15% of active traders who are profitable penny day traders .
All you have to do is learn how to buy penny stocks and find potential winners before they spike.
There are only a handful of hot penny stocks that make big moves on a daily basis. Not all stocks under $5 are hot penny stocks. The trick is to find out which penny stocks to buy spike money. We have developed a stock trading strategy using some trading rules we found 20 years ago.
If you want to become a better penny stocks trader, try learning how to trade penny stocks using our strategy.
See below:
Best Penny Stock Trading Strategy
The best penny stock trading strategy is divided into three steps, scan, search and highlight. The goal is to determine when a penny stock is skyrocketing. This is very important for penny stock traders. Not even the best trading rules in the world can tell you what each penny stock will do in every situation.
However, if you use our secret sauce, you can predict with great accuracy when penny stocks are about to pump.
If you want to learn how to trade penny stocks, just follow our rule of three:
- Scan for the best penny stocks using our 6 filters.
- Look for a technical sample.
- Attack using a market order.
Step #1: Scan
Use a penny stocks screener to find hot penny stocks. We love using the free stock scanner provided by Finviz. Customize the penny stock screener to match our parameters and filters. This will give you an edge in the market.
Penny stock specs to find the best penny stocks:
- Market cap: from 50 million to 300 million dollars
- Target price: 5% of the price
- Current volume: More than 1 million
- Country: United States of America
- 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 will make a big move. As you can see, the penny stock screener only shows some examples of penny stocks.
Once you have your penny stock watchlist, it’s time to look for a technical pattern.
See below:
Step #2: Search
If the penny stock screener only shows a handful of stocks we’d like to go through all of them and see which of them presents the most obvious technical pattern. If you are an experienced technical trader, you can use your skills to choose the best pattern.
After going through our watchlist, penny stock UUUU (Energy Fuels INC) presents the most obvious price pattern.
We managed to find a neat rectangle pattern developing on this hot stock chart. You can’t go wrong when you have such a clear pattern.
After we’ve picked up the penny stocks that show the most obvious price action, it’s time to pull the trigger.
See below:
Step #3: Stand Out
For one item, we wait for our rectangular pattern to be confirmed. When we cross the rectangular resistance, we pull the trigger and buy the penny stock UUUU.
The Rectangle Pattern is a super easy chart pattern to trade as it also gives you a very precise entry and risk point.
The key to trading any chart pattern breakout is to also see volume increase as smart money pumps penny stocks.
Best Penny Stocks to Invest in for 2020
The list of the best penny stocks to invest in is constantly changing. Most penny stock trading trends happen quickly. However, here is a list of the best penny stocks with the biggest daily gains for July 2019:
- SG block (up 57.77%)
- FTE Networks Inc. (up 22.44%)
- Integrated energy system (up 19.48%)
- Innodata (up 17.39%)
- Taronis Technologies (up 16.28%)
- Iconix brand group (up 14.71%)
- Remark Holdings (up 12.20%)
- Sierra Oncology (up 11.04%)
Pro Tip – To reduce the risk associated with any particular stock, you may want to consider diversifying your holdings and buying multiple stocks at once.
Final Thoughts – How to Trade Penny . Stocks
Penny stock offers opportunities independent of how the market as a whole works. Trading Penny stocks can be an important part of a diversified stock portfolio. But, before you put your hard-earned money into the job, you need to find stocks that tend to trade and be more liquid than average.
Penny stocks are very speculative in nature, but this market can offer you the potential to make money if you learn how to trade it correctly. It takes preparation, research, and scrutiny to succeed. Always do your due diligence and make sure to try our recommended stock scanner settings for best results. We hope you enjoyed this penny stocks beginner’s guide.