Are you a trader with a small account looking for the smartest opportunities to help grow your capital? Learning how to trade penny stocks is full of potential in this crazy market … IF you know what you’re doing.
Did you know there’s an exciting area of the stock market where daily moves of 10%, 20%, or even 50% can be common? This area of the market is so full of trading opportunities that we devote most of our time to it each day in our SteadyTrade Team community…
Strap yourself in and get ready to learn about the exciting world of penny stocks!
Table of Contents
- 1 What Exactly Are Penny Stocks?
- 2 Are Penny Stocks Worth It?
- 3 How to Develop a Strategy for Trading Penny Stocks
- 4 How Do You Find Penny Stocks to Trade in 2020?
- 5 What’s the Best Trading Platform for Penny Stocks?
- 6 What are the Potential Pitfalls of Penny Stocks?
- 7 Conclusion
- 8 One Platform. One System. Every Tool
What Exactly Are Penny Stocks?
Over 18,000 different stocks trade on the U.S. stock exchanges each day … but they’re far from equal.
But on the flip side, at the lowest end of the market, that’s where you find penny stocks. These are the low-priced, common shares of small companies. Generally, penny stocks are roughly priced below $5–$10.
Penny stocks tend to be much more volatile than larger stocks. It’s not unusual for a penny stock to rise in price by 100% or more in a day — that’s why active traders love to trade them.
Another reason to love trading penny stocks? Your competition tends to be pretty mediocre. Hedge funds and investment banks ignore this end of the market. So you’re often trading against a lot of people who don’t always know what they’re doing.
That’s exactly why your trading education is so important.
How to Trade Penny Stocks
In 2020, trading penny stocks is a pretty straightforward process…
First, you need to open a stock brokerage account and deposit some money in it. And you don’t necessarily need a ton of money. Lots of traders start with small accounts. You could start with as little as $500 or $1,000.
Next, you need a trading strategy to help you to identify when a penny stock shows the potential for a profitable trade. How do you find or create a trading strategy? Study the markets, the niche, and other traders. Watch the markets and adapt. Find what works for you.
A smart way to watch the markets is by using a trading platform. That’s software that can help you find, analyze, and watch your favorite penny stocks. A trading platform should give you access to charts, company news, stock scanners, and fundamental data.
Need a trading platform? StocksToTrade has you covered. Grab your 14-day trial of the platform for just $7 now!
Once you have a broker, a platform, a watchlist, and a strategy, it’s go time. Now you’re ready to start hunting for your favorite trade setups and making trades.
Sounds easy, right? Don’t be fooled…
The final step of the process is the longest … but for a lot of traders, it’s the most fulfilling. This is where you work to refine and improve your skillset and trading strategy. And you learn to get into a healthy trading mindset.
This part of trading never really ends. As markets change and you evolve as a trader, so will your strategy and your education. And your trading education never really ends.
How Do Penny Stocks Work
On the surface, trading or investing in penny stocks seems similar to dealing with large-cap stocks, but there are a few key differences and details…
Here’s one of the most important things to know when it comes to dealing with penny stocks: Penny stock prices are often driven by hype.
That hype can come from a number of sources … Maybe the company makes an announcement, maybe there’s a big news story about the company, or people on social media are spinning rumors about it.
Whatever the source, hype can often push traders to rush into or out of a stock — that moves the price up or down.
The second thing you need to know is that 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 usually smaller companies. So the market depth just isn’t really there.
That thin liquidity means you need to be careful when placing your orders. You want enough liquidity to ensure that you don’t push the stock price around too much with a large order.
So, is a thinly traded penny stock a bad thing for traders with small accounts?
Absolutely not! In fact, sometimes they have the potential for large percent moves. This is an area of the market where the small trader can find an advantage over a big trader or a hedge fund.
How to Invest in Penny Stocks
This is also key: For the most part, penny stocks make for better short- to medium-term trading. Most penny stock companies eventually fail. Smart traders want to get in, take a profit, and get out.
Some penny stock companies succeed in the long term and go on to become large companies. How can you find them? Here are a few tips:
- Conduct fundamental research. Fundamental research is all about a company’s internals, business model, cash flow, profits, and losses. If you want to hold a penny stock as a long-term investment, you want to be sure the company is fundamentally strong.
- Vet the company’s management. Many top investors say that it’s more important to invest in good, smart people than it is to invest in a good idea. In other words, smart people can make a bad idea or situation a success. Make sure any company you invest in is run by a high-integrity, driven management team.
- Stay up to date with company news. Keep up with a company’s latest products, press releases, and news. You also want to know when company insiders are buying or selling, or if there are any rumors about buy-outs and other corporate activities.
No matter if you’re trading or investing, having the right analysis platform will be worth its weight in gold. It can help you in so many ways. StocksToTrade offers a powerful solution for analyzing and tracking your favorite stocks. Check it out for yourself — a 14-day trial is just $7.
Is There a Downside to Penny Stocks?
It’s not all sunshine and roses with penny stocks. There are always potential risks and challenges.
Here’s a classic: in the penny stock world, it’s hard to trust anyone. Companies often spin fantastic tales. How true are they? Well, remember this … most penny stock companies fail.
Then there are the penny stock promoters. These are people or companies paid to hype a stock and 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.
It can also be tough to buy and sell penny stocks at the price you want. Sometimes the buyers or sellers simply aren’t there. So you often need a lot of patience to enter or exit trades.
Another downside? There’s a lot of speed and volatility in this niche. Prices can change FAST — not great for the unprepared trader. Volatile prices can put you and your emotions on edge. It’s critical to plan your entry and exit for every single trade.
There are indeed downsides in trading penny stocks. But that’s true of any kind of trading or investing. There’s no such thing as a risk-free strategy. And smart traders know how to find solutions.
Personally, I love this market niche. I look for trading opportunities each day. And I’m the lead trainer here at StocksToTrade. Come and see how I do it — join the SteadyTrade Team community today!
Are Penny Stocks Worth It?
It’s pretty clear that there are both pros and cons for trading penny stocks. 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 movement.
I’m not saying it’s easy. And you definitely have to study and know what you’re doing. But you can catch some amazing plays in penny stocks.
We’ve seen some penny stocks gain 20%, 50%, 100%, or more in a single day. Penny stocks can be awesome for traders with small accounts. But you absolutely need knowledge and a solid strategy…
How to Develop a Strategy for Trading Penny Stocks
So what really 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
The stock chart is probably the number-one tool for trading any kind of stock.
It may just look like a bunch of lines on a screen, but there’s so much information in a chart. It can help you determine things like:
- Where a stock price might go next.
- Where to place an intelligent stop-loss order.
- The direction of a stock 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 strongly advise you to keep things simple.
Find one or two specific chart patterns that stand out to you. Then practice finding and analyzing them.
Watch for News Catalysts
Profiting from the 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 price wave, and then exit before things crash.
That’s why it’s key to track news if you trade penny stocks. News catalysts, news stories, or announcements can affect a stock’s price.
Develop a Trading Plan
Just about every successful trader I’ve ever met has a detailed plan for how they approach the market. Trading plans cover all kinds of minor and advanced details — types of stocks to trade, setups to take, how much to risk, when to take profits, when to cut losses, and so much more…
A detailed trading plan can mean the difference between treating trading as a hobby and treating it as a business. Hobbies cost money, and businesses have the ability to make money.
How will you approach trading? Smart traders take the time to build and refine a trading plan.
Keep a Watchlist
If you spend a week analyzing penny stocks, you’ll probably discover at least 20 exciting potential trades.
The timing may be off, but you should watch those stocks. Wait for everything to line up, then take your shot like a sniper. Watchlists can help you keep tabs of all the trading opportunities you find.
A watchlist is your list of stocks that you think have potential. Maybe a stock is trading at a key level, has an exciting chart pattern, is in a hot sector, or is getting lots of exciting news coverage.
You can keep as many watchlists as you like, and check on each stock before the market opens each day. If you do it right, keeping watchlists can save you a ton of time in finding the best trading opportunities.
Use a Stock Scanner
Once you know your criteria for trade setups, you’re ready to hunt for opportunities that meet your criteria. In the old days, that meant looking at hundreds of charts, frantically browsing through news stories, and hoping you didn’t miss the setup.
Thankfully, today you can use software to 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 exciting, high-potential trading setups that you can then research further.
Check out our simple-but-powerful stock scanner — get your StocksToTrade 14-day trial for just $7!
Network With Other Serious Penny Stock Traders
There’s another downside to trading I should mention … It can be a very isolated activity. You’re often alone all day, every day in front of the screens. If you don’t have anyone to talk to about the markets, it can make you feel lonely.
That’s why it’s so important to network with other traders who are on a similar path as you. One way to network with traders is to attend trading expos like the Trader & Investor Summit. Another way is to join an online community of traders like the SteadyTrade Team.
SteadyTrade Team is an elite trading community. Our members come from a range of backgrounds and market experience. Most important: they’re serious about trading penny stocks.
As a member of the SteadyTrade Team, I’ll share my screens with you each day, and I tell you my market views, and show you the exact 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 in 2020?
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 stories and look for anything that can rile the market.
- Follow stock discussions on Twitter to learn what other traders are following.
- Subscribe to penny stock newsletters for picks by top analysts.
- Use stock scanners to locate specific trading criteria, such as big percent movers.
- Interact with other traders.
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?
As I stated earlier, 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?
Because of how low-priced the stocks are, companies that trade at the penny stocks level are often still in the developmental stages—and that could mean anything.
The company could go belly up or it could make it big, or it could end up somewhere in between.
Maybe they only have one product.
There are also many rather “sketchy” companies in this category as well. This is precisely what makes this category of stock so unpredictable.
It’s also what makes it wildly lucrative (and highly risky).
So, given the risk associated with penny stocks, how in the world can traders potentially 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.
- You’re not out to “invest” in a company.
- You’re buying the stock, not the company.
- You don’t care if the company makes it big in the end, or whether it ultimately fails.
- You only care about what the stock price looks like short term.
That’s a crucial distinction.
Many traders make the mistake of trading penny stocks like they would a blue-chip like $APPL.
They look at the company, they look who’s at the helm, and they look at what products they’re offering, and then they decide whether the company has “good bones” or whatever.
For penny stocks, you have to go in with your eyes open.
Know that most penny stock companies will ultimately fail.
You have to understand, as Timothy Sykes put it in his interview with Larry King, that “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 on the whole.
You only need to see patterns, understand what they mean, and determine if the price is going up or down.
And if up, how far up. Then, you can get in, and get out at a high before it comes back down.
There doesn’t necessarily have to be a solid catalyst for a stock price to go up.
There just has to be a perceived catalyst. And a catalyst could be as simple as a pump and dump scheme.
You just have to know what is moving it, and judge accordingly.
Penny stocks, while risky, are anything but random. If you can spot the patterns (such as the dead cat bounce) and know what’s behind the moves, you have an opportunity with penny stocks.
According to our SteadyTrade Team lead trainer Tim Bohen, financial statements are not important unless you’re looking at a short sale.
“We’re not looking at financials. We don’t read financial statements, we don’t read SEC filings. We want to see a story and a price movement.”
There’s not a doubt in my mind that penny stocks offer awesome trading opportunities for anyone trading with a small account.
You can find trading opportunities for stocks with huge swings in a single session. And you won’t have to compete with the world’s best traders, hedge funds, or investment banks. The competition just isn’t as stiff.
That’s not to say trading penny stocks is easy. You have to refine your knowledge and strategies for your entire career. You gotta know what you’re doing and 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, come and join our team with the SteadyTrade Team … You’ll be surrounded by traders who are on the exact same mission as you.
I love trading penny stocks … what’s your favorite niche? Leave a comment — I love to hear from readers!