Wondering how to trade penny stocks? Penny stocks are a great option for traders who want to start investing with just $100. The popularity of penny stock trading has skyrocketed because penny stocks are “designed” for investors who have little start-up capital. In this step-by-step guide, youll 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 penny stock trading, which made him millions in profit. Now, his name has a negative connotation. Nack in 1999, he was convicted of manipulating the stock market and running a penny stock boiler room.

Were not here to promote penny stock scams, we just want to show you what can be accomplished if you follow our penny stocks for beginners 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 successfully trade penny stocks.

What Are Penny Stocks?


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 penny stocks. Penny stocks 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 penny stocks price is consistently between $1 and $5 dollars a share, it can be listed on NYSE.

Penny stock examples:


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 penny stocks 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.

Penny stock 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 penny stocks is that unlike stocks listed on the S&P 500, penny stocks 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 penny stocks. 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 penny stocks will remain penny stocks 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 penny stocks can still be quite profitable.

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

How Do I Find Penny Stocks?


In order to find penny stocks, you need to use a penny stock scanner. A scanner will help you find hot penny stocks that are hidden from the general public attention. stock screener is our favorite free penny stock screener. This is by far the easiest way to find penny stocks.

A good penny stock 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 2019 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 penny stock list to buy.

If you lack ingenuity, try scanning for the most active penny stocks 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 penny stocks 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 penny stocks can definitely improve your chances of success.

Now that youve learned how to find the hottest penny stocks the next big question is where to buy penny stocks?

See below:

Where to Buy Penny Stocks?


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 penny stocks 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 to invest in penny stocks listed on NYSE and NASDAQ.

So, how do you buy penny stocks?

See below:

How to Buy Penny Stocks?


The best way to buy 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 penny stocks requires two more things:

  • Money to purchase the penny stocks.
  • A penny stock 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. Youll 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

Whats the Difference Between OTC and NYSE/NASDAQ Penny Stocks?

Penny stocks come in two different forms: pink sheet stocks and exchange penny stocks. “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 penny stocks, they 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 penny stocks, the next step is learning how to trade.

See below:

How to Trade Penny Stocks?


Ever wonder how to trade penny stocks?

Anyone can learn the ropes of how to trade penny stocks 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 penny stocks tend to lose money because they trade incorrectly or use a penny stock trading strategy that is not suitable for their type of trading environment. That’s what makes penny stocks 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 penny stocks 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 penny stocks 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 penny stocks. The trick is to learn what penny stocks to buy pre-spike. We have developed a penny stock 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 penny stock 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 penny stock 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 penny stocks. 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:


If you use our penny stocks 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 penny stock 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.


We manage to find a neat rectangle pattern developing on this hot penny stock’s 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 penny stock.


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 penny stock.

Best Penny Stocks to Invest for 2019

The list of the best penny stocks to invest in is constantly changing. Most penny stock trading trends unfold quickly. However, here is a list of the best penny stocks with the greatest daily increases for July 2019:

  • SG Blocks (57.77% increase)
  • FTE Networks Inc. (22.44% increase)
  • Synthesis Energy Systems (19.48% increase)
  • Innodata (17.39% increase)
  • Taronis Technologies (16.28% increase)
  • Iconix Brand Group (14.71% increase)
  • Remark Holdings (12.20% increase)
  • Sierra Oncology (11.04% increase)

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. Penny stock trading can be an important part of a diversified stock portfolio. But, before you put your hard-earned money at 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 penny stock scanner settings for best results.

We hope you enjoyed this penny stocks beginners guide. Dont forget to check out this guide to altcoins and penny cryptocurrencies.

Thank you for reading!

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With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. 

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