How to look for penny stocks before they explode

Penny stock is the definition of a high-risk, high-reward investment asset. Determining how to find penny stocks on Robinhood and other large stock trading platforms is challenging, but there is a way to do it.

Understand that no one can predict when or when a penny stock will explode. Don’t put all your money in a penny stock on a wing and a prayer. These are risky assets that can be nothing.

Walk carefully and make sure you think about your strategy before you put your money on the table.

Where to find penny stock

Finding penny stocks is not always easy. Traditional brokers often refuse to give their properties on their platform. Although Charles Schwab and TD AmericaTrade support penny stocks, it is only through their growing popularity.

For example, in February 2021, penny stock turnover increased by 2000% as more retailers entered the market.

Today, many brokers give you access to penny stock companies or nano-cap stocks. Our favorite broker for free penny stock trading is Robinhood.

5 Tips for Developing a Penny Stock Trading Strategy

Like any stock trade, you need a basic strategy that will revolve around all other trades. Buying a penny stock is a mistake because some online analysts say it was a big deal.

Here are five tips to help you develop your over-the-counter stock trading strategy:

It is also wise to start paper trading to give yourself an idea of ​​how the penny stock market works. There are lots of paper trading apps that will allow you to test the new strategies that come with you.

What makes a promising penny stock?

Today’s penny stocks are pretty much all potential diamonds. Remember, not every broker deals with penny stocks, so you need to find one first. Weigh trading costs to make sure the deal is understandable.

Furthermore, since finding the next big penny stock carries a significant risk, you need to be prepared to learn how to use a stock screener to decode all the information you have.

So, let’s dive into the features that make up a promising penny stock.

Watch out for the hype

Penny stocks are highly volatile due to their low share price. Any piece of good or bad news could set them spiking or tumbling.

All successful penny stock hype caused their meteors to start rising. Word of mouth and media buzz are the energy that fuel the growing penny stock. For example, if a celebrity supports an unknown company, it is enough to change the look of that company.

However, there is a big difference between a real news story and a buzz on social media. A social media buzz shows a tendency to depict biological growth, where little local news often fades as quickly as seen.

Many stock screeners and research platforms, such as Benzinga Pro, come with a built-in custom newsfeed to help you find the latest news whenever it appears. Check out our full Benzinga Pro review.

See trading volume

Using a platform like TradingView, you can monitor the trading volume of penny stocks. Start by looking at the trading volume of a stock on the long horizon, such as six months to a year. These statistics will give you the baseline activity of what your penny stock trading volume normally looks like.

Check out our TradingView review.

An increase in trading volume is a sign that something is going to happen. More volume means people are taking positions in anticipation of something.

Of course, it is also important to monitor whether they are buying or selling. If most people sell, it’s never a good sign. You want people to shop because, remember, other investors are also looking to get up early and look for the next big penny stock.

Are there any recent steps?

Intelligent traders are constantly monitoring the biggest gainers in previous trading sessions. If you don’t take a punt, it’s unlikely you’ll be able to get to the very bottom of the market. Instead, you want to be part of the first or second wave of stock buying. Anytime later, and you’ll probably miss the boat.

In a trading session, the top percentage gainers explain that a penny stock may close. It doesn’t always work that way, of course, but it’s a good sign that the rocket is firing fuel and the stock is about to shoot for the moon.

Penny stocks and risks

By its very nature, all stocks come with trading risks. Penny stocks come with a higher risk because they are unproven Companies with low share prices are often small, have low resilience, and do not have the following to reassure investors that they will improve five years from now.

Apple and Disney will never grow 500% in six months because they are already there. Penny stocks, on the other hand, can be. Similarly, they may not be and the company may disappear.

When investing in penny stocks, you will lose a lot more than you win. Don’t invest more than 5% to 10% of your portfolio in these assets.

Conclusion

Finding the best penny stock is an art rather than a science. This is a practice of luck, and some investors can reliably find the most profitable penny stock most of the time. Traditional investors have a reason to avoid them.

However, using the market data available to you, there is a good chance of picking the next big winner. If you do, your profits can change your life forever.

Are you interested in any penny stocks right now?

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