Penny Stocks for Day Trading: Beginner’s Guide

The market is blistering hot, and that’s driving newbie traders to look for penny stocks for day trading.

The action in penny stocks has been HUGE ever since the pandemic crashed the market in March 2020.

So you may be thinking it’s time to look for penny stocks for day trading … only maybe you have no idea where to start.

This post is all about day trading penny stocks, a market niche that can be amazing for everyday traders. It’s potentially lucrative for traders with small accounts. But you can’t just dive in. You must know how these stocks move and have a strategy for trading them.

We focus on the penny stock niche a lot in the SteadyTrade Team community. That’s where you can find mentorship and trading education that can help you navigate the markets on your terms. Join us today!

Now, in this post, we’ll dive into how to find penny stocks for day trading. Read on to learn the basics, find out what to focus on, and how to think about the markets.

Right now is one of the best times in years to learn to trade penny stocks. Let’s get right to it!

What Are Penny Stocks?

Before we dive in, let’s make sure you’re clear about exactly what penny stocks are…

Penny stocks are low-priced stocks, some traders define them as any stock that trades for $5 per share or less. Others set the cut off at $10 or below.

Penny stock companies often have small market caps. That means the total value of their shares isn’t very large. And many of these companies are relatively new.

Active traders looking to grow small accounts often find that penny stocks are the perfect vehicle. Let’s find out why…

Why Choose Penny Stocks for Day Trading?

There are close to 20,000 different stocks traded across the U.S. each day…

It’s technically easy to jump into the market and trade huge companies like Amazon and Walmart, but very few successful traders I know focus on these major names.

Instead, they tend to concentrate on the smaller end of the market, which offers a lot of benefits for the individual trader, like…

• Price volatility. As traders, we want stocks that make big moves over a short period of time. We don’t want to buy a stock and hold it for a month, only to sell it for 1% more. Penny stocks often are the biggest percentage movers on any given trading day, sometimes moving 100% or more in a single trading session. These large moves can translate into potentially amazing trading setups for skilled traders.
• Lack of competition. When you trade stocks, you’re effectively playing a game against the other traders in the market. Trading a large-cap stock like Google or Amazon, your competition includes traders at big banks and hedge funds with billions of dollars in capital. With penny stocks, your competition is often people who barely know what they’re doing. So with a little research and discipline, you can find a strategy that works for you.
• They’re perfect for traders with small accounts. Most of us start with a small amount of capital. To trade some of the large-cap stocks, you’ll need hundreds or even thousands of dollars just to purchase a single stock. With penny stocks trading at $10 or below, you can purchase 100 shares or more with a mere $1,000.

• There’s lots of information to help you develop your skills. If you go back a decade or two, the penny stock world was incredibly murky. There really wasn’t much information available for individual traders to learn about these stocks. Today, you have access to tools like my free daily premarket briefings, the no-cost weekly watchlist, and — if you’re serious about improving as a trader — the SteadyTrade Team community.
• They’re just a lot of fun to trade! The penny stock world is full of all kinds of drama, corporate scandals, monster price moves, and other excitement. There’s never a dull moment with these junk stocks, and the momentum in this niche can make for one heck of a ride.

How to Start Day Trading Penny Stocks as a Beginner

I’ve told you that trading penny stocks is a fun, interesting, and potentially lucrative activity. You may be wondering how hard it is to get started…

It’s not hard at all. Here’s what you need:

• A stock brokerage account. Stockbrokers are companies that act as agents, allowing you to buy and sell stocks. Opening an account involves a little bit of paperwork, but it’s an easy and relatively pain-free process. Check out this post for more information on picking the right brokerage account for you.
• Some trading capital. Trading capital is the funds you set aside to buy and sell stocks with. Trading involves risk, so you need to make sure that you’re able to lose these funds without taking a massive hit to your lifestyle. But it doesn’t need to be a lot of money. Many top traders started with $5,000, $1,000, or even less.
• A trading platform. Think of what a toolbox is to a mechanic. For traders, our toolbox is our trading platform and trading software. With a good trading platform, you’ll have access to stock scanners, charts, order entry platforms, and news feeds. All things that help you to search for and trade the most promising stocks. StocksToTrade is (of course) my favorite trading platform. Check it out with a 14-day trial for just $7.
• A trading plan. When the markets are open, things can be pretty hectic. Thousands of stocks tick up and down, news stories constantly pop up … It can almost be too much to handle. Smart traders deal with it by having a well-crafted trading plan.

Things I Look for in Penny Stocks for Day Trading

When you develop your trading plan and methodology, you’ll want to make something that’s entirely custom fitted for your abilities and works for you.

That said, here are a few of the things I’m constantly scanning for when I’m trying to find the hottest stocks to trade each day:

A news catalyst. When a stock makes a huge move, it’s often because of news. A news catalyst can be a media report, a Securities and Exchange Commission filing, a company announcement, or just a rumor on social media. It’s a great idea to use a news scanner to search for high-impact news stories. If you want to make things really easy, sign up for a 14-day trial of our hot new Breaking News Chat feature with StocksToTrade for just $17.

A low float stock. Low float stocks are those where insiders and major investors hold most of the company’s shares. These holders are often restricted from selling their shares, meaning there aren’t many shares available for active trading. If traders suddenly get excited about a stock and rush to buy or sell, the low float means the stock price can rise or fall by a huge amount.

A killer chart pattern. A stock chart can tell you so many useful things if you know what to look for. You can quickly determine major trading levels, overall price trends, key volume levels, and so much more. Knowing these things can help you determine the likely next move for a stock price. Check out this post to learn about some of the most common chart patterns. 

Increased trading volume. A rise in the number of shares traded in a short period of time is the most basic sign that hype is building in a stock, and traders may be about to pile in. It’s common for traders to scan for trading volume changes in the premarket hours. A platform like StocksToTrade can help you do this.

Important Terms to Know Before Day Trading Penny Stocks

If you’re a market newbie, it can seem like traders and investors are speaking a foreign language…

Don’t worry. Learning the language is easier than you think. Study up, and soon you’ll sound like a pro.

Here are a few key terms to get you started:

• Bid. The maximum price at which someone is willing to buy a stock, currently, as shown on the stock market server.
• Ask. The lowest price at which someone is willing to sell a stock, currently, as shown on the stock market server.
• Long. To be long a stock is to own the stock so that you profit if the price rises and lose money if the price declines.
• Short. To be short a stock is when you’ve borrowed a stock and sold it on the market, with the obligation to buy the stock back and return it later. When you’re short, you profit when the stock price falls, and lose money when the stock price rises.
• Support. A support level on a chart is where you can clearly see the level at which a market or security has stopped falling in the past, with buyers coming in to push the price up. For example, if a stock has bounced off the $10 price level multiple times, then $10 would be a support level.
• Resistance. A resistance level is the opposite of a support level. That is, it’s a level at which a market or security has dropped in the past. If a stock price declines every time the price gets up to $10, then that would be seen as a resistance level.
• Volatility. Volatility is the measure of how much a stock price or market moves up and down. Volatile stocks are great for active traders because they can bring large returns.
• NYSE. Short for the New York Stock Exchange, the largest and most famous stock exchange in the world. Many of the world’s biggest companies are traded on the NYSE. They include big names like Coca-Cola (NYSE: KO) and Walmart (NYSE: WMT).
• NASDAQ. The NASDAQ is the second-largest stock exchange in the world and is home to many of the world’s premier growth and technology stocks. NASDAQ was originally an acronym for the National Association of Securities Dealers Automated Quotation system. Companies like Facebook (NASDAQ: FB), Tesla (NASDAQ: TSLA), and Microsoft (NASDAQ: MSFT) are traded on the Nasdaq.

If you enjoyed learning these terms and you’re craving more, check out this post which goes over more stock market terms.

Tips for Succeeding With Penny Stocks for Day Trading

• Always be learning. There are a lot of moving parts and a lot of concepts you need to understand to trade penny stocks, so it’s important that you learn as much as you can. Learning about trading is a lot of fun. Start by with all the content on our blog. It can be addictive…
• Build a few watchlists. A watchlist is a list of stocks you’re keeping your eye on. Traders use watchlists to make it easier to focus on stocks that have the potential to be trading opportunities. As you research stocks, place the ones that look good to you on your list. You can build a watchlist using pen and paper, but to make it easier on yourself, grab a trial of StocksToTrade and use the super-simple, unlimited watchlist features.
• Be nimble. There are a lot of ups and downs when you’re trading penny stocks. Stock prices are always moving, and you’ll make losing trades as well as winning ones. To succeed as a trader, you need to be able to quickly jump into, or out of, a trade.
• Keep a trading journal. Many of the best traders I know record their trading experiences in a journal each day. They jot down their market observations, key levels, major news themes, and even their personal mindset on that day. It’s how you can look back through your trading and determine what’s working well and what needs improvement. All it takes is five or 10 minutes a day … make sure you’re updating your journal!
• Do more of what works, and less of what doesn’t work. When you have some experience in the market and know how things work, good trading can become relatively simple. Just like in every performance-based activity, improving your skills as a trader means focusing on your strengths and minimizing your weaknesses. You find out what these are through your journaling and your records of winning and losing trades.

Use StocksToTrade for Day Trading Penny Stocks

Day trading penny stocks can be as easy or as difficult as you make it…

Personally, I like to make trading as easy and straightforward as possible.

The first step toward making trading easy and simple is equipping yourself with the right tools…

Charting, news feeds, breaking news alerts, stock scanners — these are all things that help you quickly find the best trading setups. It’s how you can find hot opportunities early.

StocksToTrade can help. It was created by traders, for traders. Don’t walk into a gunfight with a knife. Grab a 14-day trial of StocksToTrade for just $7 and see why many of the world’s best traders use the platform each day.

Conclusion

We’re seeing more and more people open up brokerage accounts and start trading stocks. And with so many traders coming to the markets with small accounts, many are looking to penny stocks for day trading.

It can be a great niche to trade, but study up!

The stock market has been my greatest passion in life for decades, and that’s why I encourage others to get involved.

If you’re serious about improving your trading skills, consider joining the SteadyTrade Team community, where I and my fellow mentor Mike “Huddie” Hudson will teach you everything we know about the markets…

What are your top tips on penny stocks for day trading? How’s your performance been in the hot market? I’d love to know … tell me below!