Learn to Trade Penny Stocks

Trade Smart. Win Big.

Penny Stock TradingPenny Stock Trading can be very profitable if you stay disciplined and stick to your strategy. It’s all about being patient with your entries and cutting losses quickly when things don’t go your way.

Penny stocks are shares of companies that trade at very low prices ranging from one cent to five dollars. While there is no single definition, the SEC refers to penny stocks as “securities issued by a very small company that trades at less than $5 per share.”

To some investors, these low-priced stocks don’t generally have a good reputation and that is because there really are a lot of scam artists known as pumpers in this realm. But if you know the basic fundamentals of penny stock trading, you can avoid and even profit from these kind of scams. Learn more here.

There is money to be made in penny stock trading (a lot of money actually) but if you don’t stay disciplined and educated, you will lose a lot of your investment. This game is all about maximizing the rewards and minimizing the risks.

As you go on your journey of day trading, you will realize that patterns are very predictable and that’s what makes trading a very profitable business. You’ll learn that if you do things right, you can stack the odds in your favor and earn a lot of money.

A lot of people say that penny stocks are illiquid or non-tradable because investors usually snub them. While this is true in some areas, there are penny stocks that have tons of volume and are trading like crazy. That means you can get in, profit, and get out quickly as well. The key is looking for stocks that have decent amount of average volume usually ranging from 300,000 to 3,000,000 of shares being traded. Learn more here.

Penny Stock TradingPump-and-Dump

Many people also avoid penny stocks because they think that there are a lot of scammers. In a nutshell, A pump-and-dump takes place when scam artists put out a good word about a poorly performing company for the purpose of getting people to buy stocks and driving the price higher.


This buying action lifts the price of the stocks higher and as the price goes up, these pumpers then sell (which they bought for cheap earlier) their shares for a profit and leave like nothing happened. As a result, people will start to realize that they bought crappy stocks, they then sell them, resulting back to the downfall of the price.

Good thing is you, as an educated penny stock trader, can avoid and actually profit from these pump-and-dumps. The key is knowing ahead that a company is being pumped-and-dumped. You can buy when the price is about to go up, ride the wave, and sell right before it goes down. Do not be greedy, take profits while you still can. Learn more here.

Penny stocks are sometimes too volatile, which means that the price quickly moves up and down. Make sure to look at chat rooms, forums, newsletters, and history to determine whether or not one company is being pumped-and-dumped. Stay disciplined and do a lot of research the night before trading. You can not jump in the morning unprepared. Things happen very quickly at the market open and if you’re not prepared, you’ll lose.

Now let’s go into the basics of penny stock trading here.

Pre-Market, Market, and After Hours

Market Hours start from 9:30 am ET to 4 pm ET. These are the regular trading hours from Monday to Friday.

Pre-Market Hours are any time before the market opens at 9:30 am ET. The ability to buy and sell stocks during market hours can be determined by which broker you use.

After Hours are any time after 4 pm. Same as with pre-market hours, the ability to trade depends on which broker you have an account with.

How Much Money to Start With  in Penny Stock Trading

Budget is important in trading penny stocks. We recommend starting with $2000 in your account. This only makes sense since you always want to gain a decent amount of profit in every trade you make.

Keep in mind that you have to factor in the brokerage fees every time you trade. Most brokers charge $9.99 to buy and another $9.99 to sell stocks. With that, you’re already down almost $20 and that is why you have to start trading with a decent amount of budget.

Say for instance you bought 1000 shares of company ABC priced at $0.50 per share. That’s a total of $500. When the price moves up by 3 cents, for instance, it’s now being traded at $0.53. Your position now totals to $530 and your profit is $30 but remember that you paid for the commission for buying the shares. That’s $10 in brokerage fees just for buying the shares.

If you decide to sell and close your position, you have to pay for another $10 in commission fees. That leaves you to only $10 in profit. Had you invested $2000 initially (and not $500), you would have profited a lot more in your trade.

Finding the Right Stock Broker

Before you can buy stocks of a company, you have to set up an account with your online broker. Your choice of  broker will depend on your budget, personal goals, and strategies.

Some brokers require a minimum balance to open an account while others don’t. If you’re only planning to invest a few hundred dollars, it’s best if you find a broker that doesn’t require a minimum balance. If you plan to be a very active trader, you would want a broker that charges low per-trade commissions. They do charge commission fees when you buy and sell stocks.

Here are some criteria to look for in a broker:

  • Minimum amount to open an account
  • Commission fees
  • Research and Technical Analysis Tools
  • Ability to Trade During Pre-market and After-Market Hours


Finding Stocks to Buy

Once you have set up an account with the broker of your choice, you are now ready to find stocks to buy.

It’s always a good idea to buy stocks of a company that has good solid fundamentals. You have to look at companies that are in good financial standing and that have price actions of shares that are predictable. Key levels of support and resistance are important as they guide you when to buy and sell.

Volume is another key factor since it determines where the activity is. In trading stocks, the more shares that trade, the better your chances to profit. Stock screeners are very important in looking for which stock are at play. Some brokers offer good screeners that come with your account. There are also third party free and paid versions that you can find across the internet. 

Finviz offers a good free stock screener. There you could set your criteria in percent/price change, average volume, and price. Set the percent change to 5% to 10%, average volume to 300,000 to 3,000,000, and the price depends on how big your budget is.


When To Buy


  • During a breakout
  • When good news is out
  • Earnings winner
  • Contract winner
  • Dip buy on predictable patterns

When to Sell


  • When breakout is over
  • Resistance is met
  • You have reached your goal
  • When you have reached your risk tolerance

Following Your Instinct

As you get better in Penny Stock Trading, you will learn how to trust your instincts on entering or exiting a trade. Experience is indeed the best teacher in trading. You will probably lose a little money when you’re still starting but do not give up just yet. Think about your failures as lessons. Learn from them and become the best trader you can possibly be.

Due Diligence

It pays to have due diligence in trading stocks. That means you have to put in the work and effort to succeed. Do your research every night before going on a trade the next morning. Failing to prepare is preparing to fail.

Stick to your Strategy

In penny stock trading, it is important that you always stick to your own strategy. Plan the night before the market opens and whatever happens, stick to that plan. Emotions are heightened during market hours and sometimes you become irrational. Do not let your emotions get in the way of your trading. Always trade smart.