It is not a strategy that is suitable for everyone, and traders should carefully consider their risk tolerance and trading goals before deciding to try scalping penny stocks. Overall, scalping penny stocks can be a potentially lucrative but high-risk trading strategy, and traders should be well-prepared and fully informed before attempting it. Traders who are able to control their emotions and make decisions based on objective analysis and a well-thought-out strategy are more likely to be successful in the long run. Overall, never trading with emotion is a critical part of making money with penny stocks, as it allows traders to make rational decisions and avoid costly mistakes. However, you will not be day trading penny stocks, they are the absolute worst product.

• This is what is so attractive for investors and the crazy part is, sometimes traders won’t even know what they’re buying.
• Day trading the top penny stocks allows an investor to purchase thousands of shares for a relatively low price.
• In many cases, these companies are focused on cutting edge innovation.
• However, there are also minimum price requirements as well.

This method allows you to more or less “follow the money” because when there’s unusual volume, there’s typically an “unusual” event that could act as a catalyst. For instance, certain penny stocks may hit a scan for “unusual volume” even if the company itself doesn’t have any news. This would pertain to something like industry-related news.

The Top Penny Stocks for Day Trading: A Beginners Guide

However, momentum trading penny stocks also carries a high level of risk. Penny stocks are known for their volatility, and a stock that is experiencing strong momentum can turn on a dime. As a result, momentum traders must be prepared to cut their losses quickly if the trend starts to reverse. In addition, momentum trading penny stocks requires a high level of market knowledge and the ability to make fast, informed decisions. Traders must be able to accurately identify penny stocks that are exhibiting strong momentum and execute trades quickly in order to be successful. This strategy is based on the idea that the price of a penny stock will rise as long as there is strong buying demand for it.

A broker houses your money and connects you to the electronic marketplace. In exchange, you pay the broker commission for this service. So let’s take a deeper dive at penny stocks, and why they are the worst day trading asset. However, as an investor, a cheap price suggests the company comes with very high risk and a large probability it will not exist in a few years. The stock market is always changing and new trends are being identified. Since 2020, we’ve seen the impact of social media on penny stocks.

Trading Challenge

In this case, the gap down created an opportunity for long-term oil traders to buy energy penny stocks at much lower prices. This proved to be a winning formula as oil stocks are very cyclical. But you wouldn’t know that unless you understand some of the industry’s fundamentals. When it comes to NASDAQ and NYSE penny stocks, the exchanges will require the companies to keep their prices above $1. In the event shares dip below that level, the exchange may end up delisting that penny stock, which would then trade on the OTC.

Many of the reasons traders will stray away from things like OTC penny stocks has a lot to do with reporting requirements. This refers to the company’s responsibility to put out timely information through the submission of public filings to the SEC. Today, there are different tiers of the OTC, each with its own minimum for publicly available information. However, there are also minimum price requirements as well. Typically, penny stocks represent shares of companies that are either start-up stage or have yet to establish a significant lead in their industries. In many cases, these companies are focused on cutting edge innovation.

Never Trade With Emotion

A golden cross happens when the 50-Day Moving Average crosses over the 200-Day Moving Average. You need to find a source that is reliable and that you trust, and use that as a jumping off point to finding potential penny stock investments. The old expression goes, “Buy what you know.” If you are a medical scientist, for example, you will have an advantage when trading biotech stocks. If you are an internet programmer, your advantage will come when you’re looking at various technology companies. Or just buy what makes the most sense to you based on your readings and environment observation. A day trade is when you buy and sell a security on the same day.

If you violate the PDT rule, a broker can restrict your account from placing any day trades or even restrict it to closing transactions only for a certain period of time. So if you really want to make trading penny stocks a usable skill, education is the first thing you should think about before placing a single trade. The fact is, flipping penny stocks is harder than most will admit. Online brokerages have a lot in common, so try out a few before deciding which one you’ll stick with. Try to find a brokerage that charges as few fees as possible. Since penny stock trading is often short-term, you don’t want commission fees to eat into each of your trades.

Effective Penny Stocks Strategies for Day Traders

The higher the float, the longer it usually takes for a stock to move (in either direction). Float refers to the number of shares available to trade in the retail market. When it comes to low float penny stocks, this is where you see the multi-hundred and thousand percent moves.

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So if you’re looking for low float penny stocks to trade (float of fewer than 12 million shares), you may be better suited as a “trader” than an investor. Most of these types of stocks will rally big and then come back just as quickly. For instance, let’s say a penny stock reaches its initial morning high. Some traders will sit back and wait for the pullback from those highs before buying penny stocks. If the momentum is truly strong, penny stocks will rebound after pulling back. One of the first things you’ll want to identify is stocks with irregular or above-average volume.

All of a sudden, the stock is halted for trading as Apple announces they are buying out the company at $15 a share USD. When the halt is lifted, ABC is trading exactly at $15 a share and trading is now open at this price. Short selling is when you sell a stock you do not own, hoping to buy it at a cheaper price to profit from the differnece. The email goes out to 100,000 people advising them to buy ABC shares, it’s a great investment they say. Let’s assume just half of the list wants to buy 500 shares.