Stock Trading
Nov. 9, 202114 min read

How to Find and Trade Penny Stocks

Tim BohenAvatar
Written by Tim Bohen

How to Trade Penny Stocks: Key Takeaways

  • See how this overlooked niche can potentially help you build your trading account…
  • Find out what’s essential for trading sketchy, low-priced stocks…
  • Not sure what a penny stock is? Read on to learn all about these stocks!

Test drive StocksToTrade + the KILLER feature that can help you find the hottest stocks TODAY 

Many day traders love penny stocks because they can make intraday moves of 20%, 50%, or more! Yes, you can trade them — but you need the right rules. Here’s why our SteadyTrade Team community loves this strange corner of the market…

What Are Penny Stocks?

Thousands of stocks trade in the U.S. each day … but they’re far from equal.

There are huge companies like Apple (NASDAQ: APPL), Coca-Cola (NYSE: KO), and Microsoft (NASDAQ: MSFT). These are the large-cap stocks at the top end of the market.

Then there’s the lowest end of the market where you find penny stocks. These are the low-priced, common shares of small companies. 

Generally, penny stocks are priced at $5 and under.

These stocks tend to be more volatile than larger stocks. They can move 100% or more in a short period — that’s why active traders love to trade them.

Since they move fast, you must be prepared. That’s why your trading education is so important.

How to Trade Penny Stocks

First, open a brokerage account and deposit some money in it. Lots of traders start with small accounts. You could start with as little as $500 or $1,000.

Next, you need a strategy to help you to identify penny stocks with trade potential. It takes a lot of studying, testing, and adapting to find what works for you.

The smart approach? Use a trading platform to help you. That’s software that can help you find, analyze, and watch your favorite penny stocks. It gives you access to charts, news, stock scanners, and more.

Need a trading platform? Try StocksToTrade for two weeks now!

Once you have a broker, platform, watchlist, and strategy, it’s go time. You’re ready to start hunting for your favorite setups and making trades, right?

Don’t be fooled…

The final step of the process is the longest but often most fulfilling. You must work to refine and improve your trading skills and strategy. 

This stage never really ends. As markets change, you’ll evolve as a trader. That’s a good thing.

How Do Penny Stocks Work?

© StocksToTrade

Here’s one of the most important things to know when it comes to dealing with penny stocks: Penny stock prices often run on hype.

That hype can come from several sources … a company announcement, a big news story about the industry, or social media buzz. And it can drive traders to rush into or out of a stock — moving the price up or down.

Also, penny stocks are often thinly traded. With a stock like Apple, you can easily buy or sell $1 million worth of stock at any time of the day. There are always buyers and sellers in the market.

Penny stocks are smaller companies. The market depth just isn’t there.

Thin liquidity means you must be careful when placing orders. You want enough liquidity to ensure that you don’t push the stock price around too much with a large order.

Now, is that bad for traders with small accounts?

Nope! In fact, they have the potential for large percent gains.

How to Trade Penny Stocks

These stocks make for better short-term trading. Most penny stock companies eventually fail. Smart traders want to get in, take a profit, and get out.

Is There a Downside to Penny Stocks?

There are always potential risks and challenges in the market no matter the niche. Here are a few to note…

  • In penny stock land, don’t trust anyone. These companies can spin fantastic tales. Don’t fall for them. Remember, most penny stock companies fail.
  • Penny stock promoters. These are people or companies paid to hype a stock to try to bump up the price. Companies may do that so they can sell shares at a higher price. Shady? Yes. Go into this niche with your eyes open.
  • Order issues. It can also be tough to buy and sell penny stocks at the price you want. Sometimes the buyers or sellers aren’t there.
  • Speed and volatility. Prices in this niche can change FAST — not great for unprepared traders. Volatile prices can put you and your emotions on edge. You must plan your entry and exit for every single trade.

Yep, there are indeed downsides. But that’s true of any kind of trading. There’s no such thing as a risk-free strategy. And smart traders work to find solutions. 

Are Penny Stocks Worth It?

Is it worth it to trade penny stocks over large caps?

My answer is a resounding YES! If you trade with a small account, you may not even have enough to trade large-cap stocks. And they can move slowly. 

Penny stocks can see a lot of action.

I’m not saying it’s easy. You have to study and know what you’re doing. But you can catch amazing plays in penny stocks. And it can be awesome for traders with small accounts. 

But you need knowledge and a solid strategy…

How to Develop a Strategy for Trading Penny Stocks

© StocksToTrade

So what goes into finding, analyzing, and trading the best penny stock opportunities?

Trading penny stocks well is all about having some solid fundamental habits. Here are a few…

Watch for Chart Patterns

Stock charts are packed with information and a number-one tool for day traders. It can help you determine things like:

  • Where a stock price might go next
  • Where to place an intelligent stop-loss order
  • A stock’s price trend
  • Previous key support and resistance price levels
  • When and where to exit your trade

Pretty useful, right?

You can memorize countless chart patterns, but I advise you to keep things simple.

Find one or two chart patterns that stand out to you. Then practice finding and analyzing them.

Watch for News Catalysts

© StocksToTrade

Profiting from big, fast penny stock moves often means riding the wave of hype around a company. 

That hype might come from a news story or an SEC filing. You gotta be ready to quickly enter a trade, ride the momentum, then exit before things crash.

That’s why it’s key to track news if you trade penny stocks. News can affect a stock’s price.

Build a Trading Plan

Every successful trader I know has detailed plans for how they approach the market. 

Trading plans cover all kinds of minor and advanced details… 

  • Types of stocks to trade
  • Specific setups 
  • Risk per trade 
  • Reasonable profit goals
  • When to cut losses

How will you approach trading? Smart traders take the time to build and refine a trading plan.

Keep Watchlists

A watchlist is your list of stocks that you think have potential. 

If you spend a week analyzing penny stocks, you’ll probably discover multiple exciting potential trades. 

You might see stocks trading at key levels, with a great chart pattern, in a hot sector, or getting lots of exciting news coverage.

Put those stocks on a watchlist to help you keep tabs on all the trading opportunities you find. Then, wait for everything to line up and take your shot like a sniper.

You can keep as many watchlists as you like and check on them daily. If you do it well, maintaining watchlists can save you a ton of time in finding the best trading opportunities.

Use a Stock Scanner

Once you know your trade criteria, you’re ready to hunt for opportunities. 

In the old days, that meant looking at hundreds of charts and tons of news stories, hoping you didn’t miss the setup.

Thankfully, software can do the heavy lifting for you. Stock scanners have changed everything.

Enter your criteria into a stock scanner — let’s say you want to look for stocks with a 52-week high, unusually high trading volume, and so on. 

The scanner will then search the market high and low to match that criteria. Once the scan is complete, you’ll have a list of trading setups that you can then research further.

Network With Other Penny Stock Traders

There’s another downside to trading I should mention … It can be an isolated, lonely activity. 

You’re often alone all day, every day in front of the screens. 

That’s why it’s important to network with other traders who are on a similar path as you. One way to network with traders is to join an online community of traders like the SteadyTrade Team.

The SteadyTrade Team is our elite trading community. Our members come from a range of backgrounds and market experience. Most importantly, they’re serious about trading penny stocks.

I share my screens with members each day, explain my market views, and show you the stocks I’m watching.

Throughout the day, you can interact with me and other members in the active trader chat room. It’s a great place to ask questions, get feedback, and more. 

And you’ll have the opportunity to learn cutting-edge trading strategies in our regular educational webinars.

Ready to get serious about penny stock trading? Want to join a community of traders who are serious about trading like you? Join the SteadyTradeTeam today!

How Do You Find Penny Stocks to Trade?

Trading penny stocks is all about following the hype and finding great trade setups before the stock makes its moves.

So, how do you find these stocks? Here are a few pointers.

  • Read the news and look for anything that can rile the market.
  • Check Twitter to see what other traders are following.
  • Subscribe to newsletters to keep up with trends
  • Use stock scanners to locate specific trading criteria, such as big percent movers
  • Find your trading community

There are plenty of ways to find the best penny stock setups. Whichever way you go, it’s crucial to have the right tools and trading platform. It can help your trading day so much.

What’s the Best Trading Platform for Penny Stocks?

© StocksToTrade

Again, it’s important to pick the right trading platform for your specific needs…

Serious stock traders need a lot of tools. That could mean multiple programs or subscriptions and multiple monthly subscription fees…

But that’s not the case with StocksToTrade.

StocksToTrade is the trading platform with just about every feature you can think of for one monthly fee. We know exactly what traders need because we’re traders. 

And we built StocksToTrade with our daily trading needs in mind.

  • Charts and technical indicators? Check.
  • Scanning features for news stories, SEC filings, Twitter mentions, and more? Check.
  • Proprietary algorithms? Unlimited custom watchlists? Broker integration? Custom alerts? CHECK. 

And there’s so much more.

See why many of the best stock traders in the world use our platform — get your 14-day trial for just $7 now!

What Are the Potential Pitfalls of Penny Stocks?

These companies are often still in the developmental stages — and may not make it. Maybe they only have one product.

There are also many sketchy companies in this niche. This is part of what makes these stocks so unpredictable. 

It’s also what makes it potentially lucrative and risky.

So, given all that, how can traders possibly profit from them?

You have to first understand what penny stocks are. Remember that while you are buying a piece of the company when you purchase a stock, that’s not your purpose.

  • Don’t invest long term in these companies
  • Buy the stock, not the company
  • Focus on the stock price in the short term

Many traders make the mistake of trading penny stocks like they would a blue-chip like APPL.

NO! With penny stocks, you must go in with your eyes open.

Most penny stock companies will ultimately fail.

But as Timothy Sykes said in his interview with Larry King, “momentum can push them up dramatically for a few hours or days.”

It’s important to get out before the run is over.

You don’t need the company to be successful long term. What matters is spotting the patterns and trends.


© StocksToTrade

Penny stocks can offer awesome trading opportunities — even for traders with small accounts.

These stocks can have huge swings in a single day. 

But trading them isn’t easy. You have to refine your knowledge and strategies for your entire career. You need a solid mindset and skillset.

The tips above will get you on the right path to trading penny stocks. But remember, it’s a journey, not a destination.

If you consider yourself a serious trader, join the SteadyTrade Team … You’ll be surrounded by traders who are on the exact same mission as you.

What do you think about trading penny stocks? What’s your favorite niche? Leave a comment — I love to hear from you!