Watch our video on how to get started trading penny stocks.
Trading penny stocks is something everyone has heard of. Especially as new traders. We're all looking to grow our accounts and penny stocks are a way to do so if you don't have a lot of money. Watch our overview video on how to get started trading penny stocks. Make sure to check out our basic day trading course too if you haven't already. Read More
However, there are pitfalls to penny stock trading. In order to protect yourself and be successful, you need to know how to spot good and safe penny stocks.
What are penny stocks? Many times we think of them as sub-dollar stocks. While that's true, the SEC defines them as stocks that trade under $5.
Therefore, a $2.35 stock is considered a penny stock. When it comes to learning how to get started trading penny stocks, we can't express enough how important it is to use proper risk management.
That's going to be what protects you in a sector rife with pumping and manipulation. Don't be afraid to trade penny stocks, however.
With the right training and practice, you can profit off the manipulation. Anything is going to be successful when you take the time to properly learn.
The unfortunate reality is that 90% of traders fail and give up. The reason for this is not taking the time to properly learn how to trade different sectors and strategies.
If you want to be an exception to the rule, than don't take shortcuts. Anything worth learning takes time.
Check out our trading service to learn how to use risk management in trading penny stocks.
Probably the first thing with day trading stocks to be aware of is the pump and dump. As new traders, we want to make millions like we see the guru's talking about.
There are some phrases to be aware of. If someone promises that a stock is "going to the moon", 9 times out of 10, it's not true.
Have you ever seen someone pumping a stock that moved a tenth of a penny and they're celebrating about all the money they made? I've seen that and thought to myself, "how in the world did they make that much money on such a tiny move?"
They'd have to have millions of shares. Learning how to get started trading penny stocks can allow that to happen without putting up too much capital.
However, the reality is that they're probably bag holding from someone else. They need to get out. So they need you to buy (learn when to implement a stock loss vs stop limit order).
If someone is promoting getting on the "ground floor of something big", that' a red flag. Everyone wants to be the fist trader/investor of a company like Netflix. But how likely is that?
Did you know that many times the people doing the pumping don't have a stake in the company? They get paid by these companies to go out and get you to buy shares.
There may be many things to be aware of with trading penny stocks when it comes to manipulation so that's why we go into how to spot safe stocks to trade. Take our free day trading course to help you get started.
How many times have you heard "charts don't matter" when trading penny stocks? In fact, it happens more than you think.
If someone is telling you the charts don't matter, run away! And fast! Penny stock charts are just as important as the large cap stock charts.
In fact, we could make an argument that penny stock charts have more importance than large cap ones like Apple or Amazon; especially when it comes to investing.
However, charts give you a lot of information no matter the price of a stock. The mot popular chart style is candlesticks.
Candlesticks are the foundation of trading. They tell a story alone and when grouped together. They also give extremely important support and resistance levels.
Charts will be the deciding factor on whether or not you want to take the trade. Therefore, when someone tells you the charts don't matter, that's a red flag.
Take our stock market courses to learn how to read charts as well as different trading styles. That can help with trading penny stocks.
Now that we know how important charts are to trading penny stocks, we can delve into patterns. Patterns are the name of the game.
Patterns tell us if a stock is bullish, bearish or reversing. That's so important when getting into a position; no matter what trading style you implement.
Penny stocks are on the cheaper side so you can buy more of them. Therefore, you need to make sure you take the right position.
Would you go short on a bull flag? Would you go long on a tweezer tops? You have to be able to spot these patterns on a chart. That's how you protect yourself and your brokerage account.
Again, not every trade is going to be a winning one. In fact, even the best traders fail 30-40% of the time.
Patterns form within patterns. You have to be able to see the small patterns within the big ones. These can and do cause patterns to break down all the time.
If you want to see penny stocks traded in real time with patterns, then check out our day live trading room. You'll have a live chat with live video streaming where you can ask questions. It's a great tool.
If you look into trading the stock market at all, you come across people with differing views on everything from patterns to technical analysis.
Some people are for it and some are against it. However, here at the Bullish Bears, we've sent countless hours researching and studying an have found just how helpful technical indicators can be.
There's no tried and true method that's going to give you a 100% success rate. If someone is claiming they've found it, they're lying. They probably want you to pay a lot of money for it too.
Moving averages not only give you potential entries and exits, they also provide support and resistance. If you use the 9 and 20 EMA's then you want to get into a trade a close to the 9 as possible.
Once price breaks below the 9, that's usually a sign to close the trade. You can also use moving averages or VWAP as stop losses.
These indicators are incredibly helpful in trading penny stocks. And you'll need the help; especially staring out.
Volume is so important to learning how to get started trading penny stocks. Have you ever been stuck in a trade with no volume? It's like watching paint dry.
Since the penny stock sector is manipulated, you need volume to get price to move. When price isn't moving, you're stuck in your trade.
That can happen quite often with penny stocks that are pink slip or OTC. Look for stocks with at least 1,000,000 in volume.
Again, we can't stress the importance of volume when trading penny stocks. Don't trade any stock without volume.
When it comes to trading penny stocks you need to pay attention to the bid ask spread of the stock. The larger the bid ask, the harder it is to get orders filled. This goes along with any type of stock.
That's especially bad if you're trying to close a trade. You want a tight bid ask of no more than 20 cents apart.
Many times the penny stocks being pumped have a large bid ask. They're being pumped because someone bought without checking out the bid ask.
Then they're trapped because when they go to sell, no one is there for that price. As a result, they have to resort to trying to get other people to buy so they can get out. Read our post on how to get started in stocks for more help.
If you're going to get into trading penny stocks, you want to find a service with a trustworthy penny stocks list.
A good penny stock watch list is one that has stocks with patterns and technical analysis for good setups. If a service can't tell you why a stock is a potential good play, then stay away.
If they wouldn't trade the stocks they're putting on their watch list why should you? Don't buy a stock just because it's on a watch list either. Do research for yourself.
Make sure the setup is there. Sometimes the alerts fire off and then head in the other direction. If you jumped into the trade because the alert went off, you'll take a loss.
If you prefer stock alerts page with more expensive stocks, we've got you covered there too.
If you're going to learn how to get started trading penny stocks, then you need to practice! Open a ThinkorSwim account and practice trading them.
In fact, take our watch list and practice trading that. As a result, you'll learn to trade patterns and find good entries and exits.
Our penny stock list has good, safe plays that we trade ourselves without the pump and dump. You won't be growing our brokerage accounts for us.
Trading penny stocks a great way to grow a small account. Be aware of the pump and dump and look for stocks with volume and a tight bid ask spread. Trade using proper risk management and you'll have a great trading experience.
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