In this guide, you'll learn how to invest in penny stocks and make 50 to 1,000% gains on your investment within a short to medium time frame.
We'll cover everything you need to know even if you're a complete beginner.
It's important to keep things simple when it comes to penny stocks. Learn the basics first then add more advanced strategies as you gain knowledge and experience.
What are Penny Strocks?
Penny stocks are generally known as cheap stocks under $5 or less. You can find penny stocks trading on major exchanges like the NASDAQ or NYSES but also the OTC exchanges (much more risky).
If you're a complete beginner then focus on the penny stocks trading on the NASDQ and NYSE. OTC stocks are a different ball game plus popular stock trading apps like Robinhood and Webull don't support OTC shares.
Why Invest in Penny Stocks?
It's simply a matter of ROI. For example, let's say you want to invest $1,000 in the stock market for the biggest returns.
You could buy stock in a large company like Nike or Starbucks and make decent gains. The problem is it takes a lot of money and time to make money with larger blue chip stocks.
Investing $1,000 in Starbucks only gets you around 12 to 15 shares plus you will get at best 20% returns annually. While I recommend blue chip stocks for your retirement, you want to target faster moving stocks if you want bigger gains.
Penny stocks give you the opportunity to turn $1,000 into $5,000 or even $10,000 in a short period of time. When penny stocks move, they often soar quickly and can grow your account in a hurry.
How Much Do You Need to Invest in Penny Stocks?
I recommend starting out with a smaller amount if you're a beginner. Most newbies lose money at first because investing in penny stocks takes time, patience, and experience to understand the stock patterns and rules of the game. These penny stocks don't trade like Apple or Amazon. Penny stocks are extremely volatile and you can lose a lot in a hurry if you aren't careful.
$500 to $2,000 is enough to get started. THe best amount is $1,000 because it gives you enough money to learn along the way while making some gains.
How to Find Penny Stocks to Invest in
THere are literally dozens of websites, chatrooms, forums, and social media platforms to conduct your research.
The first place to look is at the daily volume leaders. Penny stocks move higher or lower due to volume. You want to target stocks with at least 1,000,000 volume on an given day.
I don't recommend buying low volume stocks because these stocks often trade at low prices for months or years. You need to do some research and figure out which companies are actively traded.
Here's a few resources:!!!
Why focus on volume?
Because penny stocks tend to go lower over time if nobody is buying the stock. You could buy at a high price and continue to lose on your investment over time. Identify a good company but wait for the right time to buy. Volume is how you know when to buy.
When to Invest in Penny Stocks
The best time to buy these stocks is when they cross above the 20 day moving average . A moving average is a sum of all the stock prices dividend by the number of days. It's a simple indicator that tells us roughly how much a stock is trading for at any given time.
I like to buy penny stocks when they cross above the 20 dma because this is a bullish signal.
Use Stop Losses to Protect Against Losses
Penny stocks are risky so use a stop loss (or trailing stop) order to minimize your losses.
If a penny stock dips lower than 10%, I usually exit the trade and cut my losses. I know I can buy the stock much cheaper in the future if the trend goes downward.
Don't try to guess where the stock is heading. Create an exit plan and leave the trade once things go wrong.
When to Sell Penny Stocks
Penny stocks often run up quickly but can go down just as fast. A key indicator is when the stock crosses below the 20 dma or when the stock posts multiple red days in a row. This is a bearish signal and you can exit the trend if this continues.