How To Trade Penny Stocks: 2023 Penny Stock Beginners Guide

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

Wondering how to trade penny stocks? Penny stocks (PS) are a great option for traders who want to start investing with just $100. The popularity of penny stock trading has skyrocketed because they are “designed” for investors who have little start-up capital. In this step-by-step guide, you’ll learn how to trade penny stocks for beginners.

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Jordan Belfort, also known as the “Wolf of Wall Street,” is a stockbroker who made his name dealing in PS trading, which made him millions in profit. Now, his name has a negative connotation. Back in 1999, he was convicted of manipulating the stock market and running a PS boiler room.

We’re not here to promote PS scams, we just want to show you what can be accomplished if you follow our how to trade penny stocks for beginner’s guide.

Before you risk any of your hard-earned money, let’s learn what penny stocks are and how to buy them. By the end of this guide, you’ll know the exact trading tips, methods, and strategies to learn how to trade penny stocks successfully.

What Are Penny Stocks?

Penny Stocks
Penny stocks trading 1

What are penny stocks? According to the US Securities and Exchange Commission (SEC), penny stocks are shares in companies that trade below $5 five dollars. In the past, only stocks under $1 were considered PS. They are also referred to as “pink sheet stocks.”

Usually, penny stock companies operate outside the major exchanges like the NYSE or NASDAQ. They are traded over the counter. However, if a PS price is consistently between $1 and $5 dollars a share, it can be listed on NYSE.

PS examples:

Penny Stock Trading
Penny stocks trading 6

If you want to learn more about the OTC market, please visit Over-the-Counter Trading – How the Whales Trade.

The second characteristic of penny stocks is that they have a small market cap. These cheap PS generally have a market cap of less than $300 million or $50 million.

Risks and Benefits of Trading Penny Stocks

There are multiple benefits of trading penny stocks. Because these stocks are priced under $5, there is a limited risk. The most you can lose is $5. By choosing the right stocks, however, you have access to an unlimited upside. Though they are rare, instances of stocks rising from $1 to $100 within a month are not unheard of.

PS price movements are usually more volatile than normal stocks. For day traders, this means there will be multiple opportunities for profit within a given trading period. Even if a stock only moves from $0.20 to $0.30, this is still a 50% increase in value.

Another benefit of trading PS is that unlike stocks listed on the S&P 500, PS are loosely correlated with the market as a whole. Even if the entire economy is undergoing a recession, there will still be penny stocks rising in value.

There are drawbacks to trading PS. Many of these companies have very little (or even negative) value, which is why they are priced so low, to begin with.

The majority of PS will remain low-valued for life. Furthermore, because they are often traded over the counter and with little oversight, these stocks are a prime target for pump and dump or insider trading schemes. Still, when managed correctly, trading PS can still be quite profitable.

Let’s dive into how to find tradeable stocks using this smart, simple strategy.

How Do I Find Penny Stocks?

Penny Stocks For Beginners
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In order to find penny stocks, you need to use a PS scanner. A scanner will help you find hot penny stocks that are hidden from the general public attention.

Finviz.com stock screener is our favorite free PS screener. This is by far the easiest way to find PS.

A good PS screener will let you scan for stocks under $5 or for stocks under $1 using customized parameters. You can find the best penny stocks to buy for 2023 that meet your specific parameters and filters. If you’re just getting started learning how to trade penny stocks, don’t be afraid to play with the online stock screen tool testing different filters. This can lead to a powerful PS list to buy.

If you lack ingenuity, try scanning for the most active PS in the premarket. This will give you a list of day-trading penny stocks.

Remember – A lack of research can lead you to invest in some of the worst pump-and-dump scams. Learning how to make money from trading PS comes down to putting in the time and effort. There is no secret formula to find stocks before a pre-spike. But, learning how to find the right PS can definitely improve your chances of success.

Now that you’ve learned how to find the hottest PS the next big question is where to buy penny stocks.

Also see: Single Stock Trading, Meme Stock Trading Strategy

Where to Buy Penny Stocks?

How To Trade Penny Stocks - Where To Buy
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Most penny stocks are listed on the OTCBB (over-the-counter bulletin board), however, some of them can also be found on the regular stock exchanges. Professional traders on Wall Street refer to PS as over-the-counter stocks.

There are more than 10,000 securities listed on the OTCBB. Investors can trade and access these pink sheet stocks via an online stockbroker.

Since OTC stocks are very volatile and illiquid, we recommend only investing in penny stocks listed on NYSE and NASDAQ.

So, how do you buy penny stocks?

See below:

How to Trade Penny Stocks?

How To Trade Penny Stocks
Penny stocks trading 4

The best way to buy or sell penny stocks is to go through a regulated stockbroker. A Broker will get you access to the market with leverage, so you can begin trading quickly. Besides a using broker, learning how to buy PS requires two more things:

  • Money to purchase the penny stocks.
  • A PS trading strategy to help you pick the best penny stocks.

Try to avoid buying penny stocks directly from dealers who call you to pitch investment opportunities. Try researching low commission stock brokers that offer OTC stocks and penny stocks listed on the NYSE or NASDAQ. You’ll want to have a wide variety of options, so you can find the best-performing stocks.

Here are the top brokers we recommend:

  • Fidelity Investments – $4.95 per trade
  • Charles Schwab – $4.95 per trade
  • eOption – $3.00 per trade
  • TD Ameritrade – $6.95 per trade
  • Interactive Brokers – $.005 per trade
  • TradeStation – $5 per trade

Don’t forget, even as penny stock traders, you are still subject to Pattern Day Trading Rules.

What’s the Difference Between OTC and NYSE/NASDAQ Penny Stocks?

Penny stocks come in two different forms: pink sheet stocks and exchange PS. “Pink Sheet” penny stocks are traded over the counter. “Exchange” penny stocks are still priced under $5 but are featured on a major exchange such as the NYSE or NASDAQ. Blockbuster is a prime example of an exchange stock that eventually achieved “penny stock” status. 

Usually, when people refer to PS, they are probably referring to stocks being traded over the counter. These stocks usually have very small market caps and the market itself is very lightly regulated. While the right pink sheet stocks can yield profitable returns, they are usually considered riskier than those listed on the major exchanges.

Now that you know about the two different types of PS, the next step is learning how to trade.

See below:

How to Trade Penny Stocks?

Penny Stock Trading
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Ever wonder how to trade penny stocks?

Anyone can learn the ropes of how to trade PS for free. There are no hidden secrets because the game on Wall Street never changes. Penny stocks are characterized by big volatility. They can go from a few cents per share up to a couple of dollars very fast.

You can make a lot of money from volatility, but you can also lose lots of money.

Most people trading PS tend to lose money because they trade incorrectly or use a PS trading strategy that is not suitable for their type of trading environment. That’s what makes PS a high-risk, high-return investment.

At the end of the day, you have to keep in mind that 85% of active traders lose money trading the stock market.

However, if you learn how to trade PS the right way, you can skew the odds in your favor and be part of the 15% of active traders that are profitable day-trading penny stocks.

All you have to do is to learn how to buy PS and find potential winners before they spike.

There are only a handful of hot penny stocks that make big moves on a day to day basis. Not all the stocks under $5 are hot PS. The trick is to learn what PS to buy pre-spike. We have developed a PS trading strategy that uses some trading rules that we found 20 years ago.

If you want to become a better penny stock trader, try learning how to trade penny stocks using our methodology.

See below:

The Best Penny Stock Trading Strategy

The best PS trading strategy is broken into three steps: scanning, searching, and striking. The goal is to identify when a penny stock is spiking. This is very important for penny stock traders. Not even the best trading rules in the world can tell you what every penny stock will do in every situation.

However, if you use our “secret sauce” you can predict with a high degree of accuracy when a PS is about to get pumped.

If you want to learn how to trade penny stocks, simply follow our three S’s rule:

  • Scan for the best penny stocks using our 6 filters.
  • Search for a technical pattern.
  • Strike using a market order.

Step #1: Scanning

Use a penny stock screener to find hot PS. We prefer using the free stock scanner offered by Finviz. Customize the penny stock screener to match our parameters and filters. This will give you an edge in the market.

Penny stocks parameters to find the best penny stocks:

  • Market Cap: between $50 million and $300 million
  • Target Price: 5% Above price
  • Current Volume: Over 1M
  • Country: USA
  • Price: Under $5
  • Technical: Price Above the 200-day Simple Moving Average

List of penny stocks to buy:

10 Best Penny Stocks
Penny stocks trading 7

If you use our PS filters, you have the potential to find penny stocks that are going to make a big run. As you can see, the penny stock screener only displays a handful of penny stock examples.

Once you have your PS watch list, it’s time to search for a technical pattern.

See below:

Step #2: Searching

If the penny stock screener only displays a handful of stocks we like to look through all of them and see which of them presents the clearest technical pattern. If you’re an experienced technical trader you can use your skills to pick the best pattern.

After looking through our watch list, the penny stock UUUU (Energy Fuels INC) presents the clearest price pattern.

Top 100 Active Penny Stocks
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We manage to find a neat rectangle pattern developing on this hot PS chart. You can’t go wrong trading when you have such a clear pattern.

After we picked up the penny stock that shows the clearest price action, it’s time to pull the trigger.

See below:

Step #3: Striking

For entry, we wait for our rectangle pattern to get confirmed. Once we break above the rectangle resistance line, we pull the trigger and buy the UUUU PS.

List Of Penny Stocks To Buy
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The rectangle pattern is a super easy chart pattern to trade because it gives you a very precise entry point and risk point as well.

The key to trading any breakout of a chart pattern is to also see the volume picking up as smart money pumps the PS.

Best Penny Stocks to Invest for 2023

The list of the best PS to invest in is constantly changing. Most PS trading trends unfold quickly. However, here is a list of the top penny stocks for March 2023:

  • ECN Capital Corp
  • Marfrig Global Foods SA
  • Galaxy Digital Holdings Ltd.
  • SNDL Inc.
  • Rocket Lab USA Inc.
  • IonQ Inc.
  • Ardelyx Inc
  • Arafura Rare Earths Ltd.
  • Geron Corp.

Pro Tip – To reduce the risk attached to any given stock, consider diversifying your holdings and purchasing multiple stocks at once.

Final Thoughts – How to Trade Penny Stocks

Penny stocks present opportunities that are independent of how the overall market is performing. PS trading can be an important part of a diversified stock portfolio. But, before you put your hard-earned money to work, you need to find penny stocks that are more tradable and liquid than average.

Penny stocks are very speculative in nature, but this market can provide you with a probability to make money if you learn how to trade correctly. Proper preparation, research, and scrutiny are needed to be successful. Always due your due diligence, and make sure to try our suggested PS scanner settings for the best results.

We hope you enjoyed this How To Trade Penny Stocks Beginner’s Guide. Don’t forget to check out this guide to altcoins and penny cryptocurrencies.

Thank you for reading!

Feel free to leave any comments below, we do read them all and will respond.

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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

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  1. In the rules for the scanner you state that the price should be above the 200 day simple moving average but in the the chart you used as an example its labeled as the 200 EMA. Which moving average should I be using for this strategy, the 200SMA or the 200EMA?

  2. Thanks for the guide, i would like to know if knowledge of trading forex can help one to get started in penny stock

  3. Hey there are using WordPress for your site platform? I’m new to the blog world but I’m trying to get started and set up my own. Do you need any html coding knowledge to make your own blog? Any help would be really appreciated!

  4. Hi my family member! I wish to say that this post is amazing, nice written and come with almost all important infos. I抎 like to look more posts like this .

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