Trading penny stocks has never been easier as many brokers offer platforms with little to no fees. An entire industry built on educating and informing new traders means new penny stock traders are more prepared to handle the ups and downs of a volatile market.
Here is a five step guide that covers everything from learning how to trade penny stocks to placing that first trade on a brokerage platform.
Step 1: Find a platform that helps identify penny stocks
The first step towards trading penny stocks is quite simple: open a brokerage account that offers access to trade the market you want to trade. The best piece of advice is to select a broker that offers a lot of value-added services that help identify stocks to trade. For example, the best penny stocks on Robinhood are available for everyone to see, even those who aren’t clients.
Rival broker eToro lets users discover and identify experts with a proven track record and copy their ideas.
Legacy brokers shouldn’t be overlooked, as well. The brokers that your parents and grandparents counted on to manage their investments also provide value-added services, like access to market research or more advanced trading platforms designed for high frequency trading.
Step 2: Learn from the pros
YouTube is a great starting point for traders of all levels of experience to find penny stock trading ideas or information on how to identify setups to maximize returns.
A simple search along the lines of “top penny stocks” or any variation will generate hundreds if not thousands of videos. The best part about YouTube is that you can sort the search results by criteria, such as by total views or length.
YouTube is generally a good starting point as established educators on the platform gather a large following because they offer quality help and advice on how to become a more profitable trader.
Some YouTubers use the streaming video platform to promote their paid-for website or other services — and this is more than fine. Chances are if you find value in something for free, it might be worth the few dollars to pay for exclusive access to additional material.
Consider this a worthwhile investment as finding winning penny stocks generated large returns for some investors throughout 2020.
If you come across someone that you don’t like for whatever reason, all it takes is a few clicks of the mouse to start again at a new channel until you find someone that suits your trading personality.
Also, Wall Street analysts offer recommendations to their clients. There are a few ways new penny stock traders can find out what analysts are saying about a particular penny stock. One of the easiest ways to get informed is through Twitter. Simply perform a search with a dollar sign followed by the stock ticker on the social media platform.
Below is an example of what a Tweet might look like that:
$LCTX Chardan Capital Reiterates a Buy Rating, set $4 Price Target, on Lineage Cell Therapeutics (LCTX) => https://t.co/8nZlznhNpN#LineageCellTherapeutics #Biotechnology #CellBased #Therapy #StemCells #Treatments #BioTech #Stock #LCTX
— MichaelSDeVries (@MichaelSDeVries) November 19, 2020
Step 3: Study every morning
One of the biggest drawbacks of YouTube videos is that a lot of the great penny stock content becomes outdated very quickly. What was a hot stock on a Monday could become old news by the following day. After all, there are tens of thousands of stocks in the market and it is nearly impossible to manually hunt for a small handful of trading ideas.
Tuning into a daily live podcast each morning can help traders identify penny stocks that are in play. Even some of the most advanced traders with years of experience tune in to their favourite podcast host for new ideas. Most if not all podcasts also discuss macro trends that may not seem relevant to penny stock traders but assuming this is the case would be a mistake.
Suppose S&P 500 futures are tumbling in the pre-market session while the Volatility Index, also known as the “fear index” is spiking. This would serve as a warning sign to penny stock traders to be mindful of the broader market sentiment and perhaps approach trades with more caution than normal.
On the other hand, if there was an uber-bullish event that took place (for example a successful outcome from a COVID-19 vaccine trial), this is something penny stock traders need to know about it because it means investors are likely feeling incrementally bullish.
Armed with extra information about what is going on outside of the penny stock universe leads to more informed trades.
Step 4: chat with new friends
What better avenue is there than a gathering of traders talking about trading? Chat rooms are another venue where penny stock traders can not only interact with their peers but gather expert advice on identifying penny stocks to trade.
Chat rooms aren’t cheap but new traders, in particular, can find it beneficial to interact with like-minded people that share similar financial goals.
Look for a room that offers access to live breaking news. This way you can be updated in real time on what penny stocks are making the news and are more likely to rise before other investors slowly catch on through slower platforms, like Twitter.
Look for a chat room that has a moderator who is respectful but firm in ensuring a respectful and comfortable environment for all. New traders in particular may get intimidated from more experienced pros who think they know it all and often feel the need to vent their frustration on novices.
Know what is right for you
No two traders are alike and what works for one trader might not work for another. Some like to educate themselves on the theory behind trade setups while others prefer to pay for a shortcut and have a professional do the heavy lifting for them.
No one option is better than the other. But what’s important is to understand what it is you want to get out of a service and how it can help evaluate and set up a trade.