Generally speaking, day trading penny stocks are high-risk and high-reward when done right. But how do you get into this type of trading and prevent big losses? Let’s find out what penny stocks are and the best penny stocks for intraday trading and more below.
What exactly are penny stocks?
The most common definition of penny stocks is assets that trade for under $5 per share. They’re unlikely to be listed on a major exchange like the NYSE or NASDAQ. So, you could think of them as a more affordable option than bigger stocks.
However, due to their low price and low trade levels, penny stocks can be more volatile and prone to manipulation. This makes them a risky investment but also potentially lucrative if you are able to buy and sell them at the right times.
On the surface, it might look like penny stock for intraday trading is easy to do. But you should keep in mind that it’s not for everyone, and it can be a very risky endeavor. You need to be aware of when to trade penny stocks most active on that specific day, for example.
Tips on How to Trade Penny Stocks
Now that you have a good understanding of what penny stocks are, it’s time to find out how to trade them. As mentioned earlier, there’s a risk associated with buying and selling these cheaper stocks. So, if you want to try day trading penny stocks, consider the below.
- Find a reputable broker to trade through. It ensures that you have a trustworthy place to add funds and make withdrawals with minimal fees.
- Open your trading account by filling out the registration form and verifying your details.
- Fund your new account using payment methods such as a PayPal account, debit cards, or credit cards. Take note of the minimum deposit amount or any deposit fees when adding your funds.
- Do your research to find the best penny stocks for day trading. Check out specialist videos, news channels, or social media accounts for educational content. From there, you should get a good idea of what to look out for when considering penny stocks to trade.
- Start by buying stocks you believe will increase in value. Then, sell those that you think will experience a fall in price. Your trading plan should include waiting to see if a stock price will research a certain target, then selling once it reaches.
Using Penny Stock Market Analysis For Trading
When showing interest in day trading penny stocks, you should do your due diligence and research the companies you are considering investing in. This may include reviewing their financial statements, news articles, and any other information that is available about the company.
It is also a good idea to have a solid understanding of technical analysis and be able to identify chart patterns that may indicate a potential trade. Here’s what else to consider when finding the best penny stocks for day trading.
- Do your research on any company whose stock you’re considering buying, especially if it’s a penny stock. Look for financial statements, press releases, and other information about the company.
- Have a plan before you start trading. Determine your investment goals and risk tolerance. Additionally, consider factors such as the company’s financial health, market conditions, and potential risks.
- Use a stop-loss order, which is selling a security when it reaches a certain price. This can help you limit your potential losses if the stock price decreases.
- Be prepared for volatility. Their prices can fluctuate significantly in a short period of time. It’s important to be prepared for this volatility and to have a plan in place for managing your trades.
- Don’t let the social hype sweep you up. If many people are talking about a penny share on social platforms, it could influence the price. But, you should still use your head regarding such excitement around a stock. A price can come crashing down as quickly as it went up. So keep your emotions out of your reasons for trading penny stock.
Remember, investing in penny stocks carries a high level of risk and can result in significant losses. It’s important to be cautious and to carefully consider the potential risks and rewards before investing.
A Quick Penny Stock Example for Beginners
As mentioned earlier, penny stock is a stock that trades for under $5 per share. So, look out for these when you start your trading journey if you’re targeting penny stocks.
As an example, you might see a penny stock going for $0.50 per share. This company is likely to be small, maybe even a start-up. Additionally, you probably won’t see it on a big stock exchange such as the NYSE or NASDAQ.
When you buy the stock at $0.50 per share, the goal is to sell for a profit. You can decide at what price you want it to reach before selling. So, if the value of the stock increases by 50%, you can sell at that time for a profit.
This company is unlikely to be well-established, or it’ll be in financial trouble. That’s why the share price is so low. It’s also why it’s unlikely that the price will increase. These factors are what make trading penny stocks so risky.
The Best Places to Trade Penny Stocks
Some of the most common places to trade the best penny stocks are:
- Online brokerages: They offer the ability to trade penny stocks alongside higher value assets too.
- Over-the-counter markets: Also called OTC, these are markets that are not as regulated as major stock exchanges. This makes them risky to use for penny stock trading.
- Major stock exchanges: Some penny stocks may be listed on the NYSE or NASDAQ. While these stocks may still be considered risky, they may be slightly less risky than those traded on OTC markets. They are subject to the exchange’s listing requirements.