Do you know the best penny stocks to buy? Trading the biggest penny stock gainers is a fickle game, to say the least. One MUCH more complicated than "Oh, I'm gonna short the parabolic penny stock runner of the day and bank huge" - not the way it works folds.
You want to play this game to win because fraud is rampant in penny stock trading if you don't know what to look for.
So let's get into it.
What Are the Best Penny Stocks to Buy?
Make sure to check out our penny stock live trading room where we scan for, trade an talk about the best penny stocks to buy.
1. A Penny Stock Defined
Despite the misleading name, the best penny stocks to buy aren't worth pennies. According to the SEC (Securities and Exchange Commission), any stock traded for less than five dollars are considered penny stocks.
In fact, several well-known companies, including Ford (NYSE: F), Sirius XM (NASDAQ: SIRI) and even Pier 1 Imports (NYSE: PIR), used to trade as penny stocks.
The biggest penny stock gainers: They're cheap, they're volatile, and they're moneymakers. With a relatively small investment of capital and the right penny stock strategy, you too can make an excellent return.
That is, of course, if the trade works out. Take a $.30 stock, for example. Say you buy 10,000 shares and the price soars to $1.00. For an initial cost of $3,000, you just made $7,000 effectively doubling your money.
That's not too shabby if you ask me. The allure of penny stocks will suck in even the most seasoned traders if they're not careful. Sound too good to be true? Yes and no.
If I am to be brutally honest, they're a great way to both make and lose money, as you can see from the example above. I've traded penny stocks, and I've lost money.
But, I've also traded penny stocks and made money. Fortunately, you can, too, with the right penny stock strategy. We have trading alerts for penny stocks that look at support and resistance and patterns.
On that note, today I thought I'd give you some survival tips on how to turn your $3,000 investment into a $7,000 return.
2. The Risk of Penny Stocks
I get it; penny stocks are alluring. The promises of "get rich quick" are tempting, but you need to do your homework first. My first concern is the penny stock companies that use Form SB-2, which requires minimal information.
As an investor or trader, you have no idea if the house is built on solid footings or quicksand. Without a clear picture of the financials or data, you have no clue if the claims from the company are valid.
Part of the misleading information is because some marijuana penny stocks act as shell companies. These shell companies depend on the hype that drives the value up one day and back down another.
Savvy traders ride the momentum train both direction, scalping in and out of positions. Another primary concern with penny stocks is that they are hard to unload, especially on a bad day.
If, for whatever reason you want to sell, you could have issues trying to find someone on the other end to buy them; especially scalping them.
3. The Rewards of the Best Penny Stocks to Buy
My intent here is not to scare you but to inform you. Likewise, if you find the right company at the right price, your rewards could be golden.
One cool thing about penny stocks is that you don't need a lot of money to get started. For example, a small investment of $1000 in an established company might only get you 50 shares, but 1000's in a penny stock.
To reap those rewards, you need to do a bit of homework. Find out about the companies' financial information and how they operate. Make sure they have adequate liquidity and trading volume so you can get in and out when you need to.
Because when the smoke clears, you want to make sure your money doesn't go up in smoke as well. Especially if you decide you'll be swing trading penny stocks.
What Is the Most Successful Penny Stock Ever?
- When we're looking for the best penny stocks to buy, we want it to become the most successful penny stock ever right? So which penny stock turned out to be the most successful ever? Monster Energy ($MNST) was at one point a penny stock. And look where it is now? But don't expect every penny stock to become Monster Energy. Make ure to check out our penny stocks list.
1. Check the Float
Checking the float is the first thing I do. Specifically, the float is the number of shares available to trade on the open market. And the lower, the better because these are the stocks that will move and move quickly because they're less liquid.
Be warned though, the lower the float, the more potential it has to do something nuts. Moreover, I suggest you stick with a float greater than 300,000 to ensure you're trading a liquid stock.
But the float should also be less than 20 million since stocks with floats over 20 million typically don't have the big daily price moves you need.
2. Be Careful of Shorting Them
Even if the penny stock's primed for reversal: The RSI is at 90 with a 9 EMA crossing under the 20, be careful of shorting them. Generally speaking, penny stocks are volatile and have a nasty habit of trapping short-sellers in a short-squeeze.
While the price is soaring up, you can quickly lose 50% or more. A point often overlooked is it's hard to find shares of penny stocks to short.
And, once you do find them, there's additional fees and such. You'll want to find this information out before investing in penny stocks up or down.
3. The Volume Must Be High on the Best Penny Stocks to Buy
Any price movement up or down with relatively high volume's seen as a stronger, more relevant move than a similar move with weak volume. By the same token, volume verifies trends and precedes price.
For example, a surge of volume is mandatory to confirm a breakout. If there's no volume, it is not a breakout; it could be just a false rally. Thus, if you're looking at a large price movement, look at the volume to see if it tells the same story.
Alternatively, if the volume is starting to decrease in an upward trend, it's usually a sign that the upward run is about to end. In other words, a reversal is coming. That, in my opinion, is pretty powerful information to know.
Not only do we use volume to confirm trends, but we also look at it to get the best price. If the volume isn't there, you will have a very wide bid-ask spread. In the trading world, a wide bid-ask spread leads to what's known as slippage.
And the problem with slippage is that it makes getting the best price next to impossible. Shockingly, it could mean you have to pay 5% to 15% extra just for the illiquidity.
Over the course of a year, this could really add up if you're not careful. Thus, whether it is ETFs or tech stocks, you must pay attention to the volume.
Are There Any Penny Stocks Worth Buying?
- Looking for the best penny stocks to buy? Are penny stocks even worth buying? If you know what you're looking for, then yes they can be worth buying. In fact, the top penny stock gainers can be a great day trade.
1. Pay Attention to Relative Volume
Relative volume compares the current volume to normal volume for the same time of day. For example, a stock trading five times its normal volume would have a relative volume of five.
As intraday traders, we want the RVOL at two or higher with a positive catalyst. Coupled with a low float (see below), this stock has the potential to make you money.
Generally speaking, almost every winner is high in relative volume that day compared to its average volume.
2. Pick Stocks That Are Easy to Sell
In other words, high liquidity stocks. Even if a stock is at a rock bottom price and you think it's a steal of a deal, be careful. If something seems too good to be true, it probably is.
Be sure to pick a high liquidity stock. If there are no buyers for your stock, you might be stuck holding onto something no one wants and, you might face a loss.
Anything under 50 cents a share, trading less than 100,000 shares a day is not liquid. It's dangerous. To trade something like this expecting to make a quick buck is not only wrong.
It's worse than wrong; it's stupid. Make sure you know how to research penny stocks.
Your Next Steps
There is no get rich quick and if anyone tells you otherwise, run. If you're looking to learn how to find the best penny stocks to buy, then you've come to the right community.
We have free courses designed to teach you day trading penny stocks the profitable way. Get started now with our free trial. Good luck in your trading journey. I hope this helped, and enjoy the rest of your weekend!