Penny stock trading strategies are important when you begin trading in this sector. Penny stocks usually trade outside of the major market exchanges. These small-cap stocks are priced under a dollar. Typically penny stocks are seen as high-risk. Since penny stocks are usually small companies, they have fewer filing and regulatory standards. This causes a lack of liquidity and large bid-ask spreads. (Make sure to check out ThinkorSwims penny stocks app).
Penny stocks are usually known as OTC (over-the-counter) or pink sheet stocks. Pink sheets are compiled daily with the bid-ask spreads. Pink sheets aren’t required to file with the SEC. Because these stocks are risky, ensuring good penny stock trading strategies is paramount. The attraction of penny stocks is that they don’t cost a lot. They also promise big profits.
Who wouldn’t want to spend only a little to make a lot? It sounds too good to be true. Usually, it is. There is money to be made. But there’s also money to be lost. Typically losing means losing big.
When you want to invest in the stock market with little money, penny stocks are attractive. Buying stocks like Amazon, Apple, or Google can seem out of reach. For example, you see a stock that’s $0.30, so you want to make a little money. You buy 10,000 shares and spend $3,000. It gets to $1. You’ve just made $7,000. Day trading penny stocks can be very lucrative if done right. Pot stocks are a very profitable sector to trade when the momentum is running.
How to Trade Penny Stocks
It would be best to have a lot of volume when trading. Stick to penny stocks that trade at least 100,000 shares daily—ideally, 300,000+. If you’re trading low-volume stocks, getting out could not be easy.
When you’re trading with high volume, the stock will be volatile. Volatile up or down. That’s exactly what you want, movement and price action. The volatility is going to push the price. Price can move pretty quickly, and emotions will often flood in.
So, make sure you don’t hold for a long time. Get your gains and get out. Use mental stop losses. Penny stocks are moving quickly, and a stop can be triggered in a second, then bounce back even higher.
Since penny stock trading tends to have large bid-ask spreads, there’s a higher risk of losing money as the volatility increases. Mental stops take more concentration. You’re not relying on that hard stop loss you’ve used in larger-cap stocks. Hence the need for penny stock trading strategies that work. Take our free online trading for beginners to keep working on your skills.
What’s the best penny stock trading app for day trading penny stocks from your phone? ThinkorSwim, Robinhood, Webull, and IBKR are good penny stock trading apps.
We want to caution you before using a pennystock trading app because this sector is very volatile, so if you use them, ensure you have proper risk management strategies. If you don’t know what that is…it’s time to study more. If you want to learn more about the best companies for all types of trading, check out our tools page above to see our company reviews.
Frequently Asked Questions
Can you make money in penny stocks? Yes, you can make a lot of money but you can also lose a lot of money if you aren’t careful. It’s important to manage your risk when trading them and be aware of stock pumpers. We’re not stock pumpers in the Bullish Bears community. We teach you how to trade penny stock trading strategies the right way. We show real-time support and resistance levels, do coaching and mentoring, and we don’t encourage followers to follow us into low float trades.
How much money do you need to start trading penny stocks. Ideally you’ll want to have at least $5,000-$10,000 if you are looking to swing trade penny stocks. If you are looking to day trade them then you need at least $25,000 in your account or else you’ll be hit with the pdt rule. Using an offshore broker like UstockTrade or CMEG will help you avoid being a pattern day trader.
- Open a brokerage account
- SpeedTrader, LightSpeed, TradeStation are best
- Take a day trading course
- Use hot keys to get in and out of trades quickly
- Learn how to short penny stocks on bearish days
- Use a good stock scanner to hunt for moving stocks
- Build a watch list in premarket
- Map out support and resistance levels
- Look to take trade on momentum breakouts