Amid newfangeld cryptocurrency fever, the highly volatile penny stock market looks very mild and stable which doesn’t necessarily mean it has lost its attraction for prospective investors. Top market movers are still under radar of reputable money market funds and investment banks, which seek the right time to come into play. Apart from that stock hunting, I believe that regular traders (like you and I) with an adequate knowledge of money and risk management can still find a way of making reasonable USD gains off the unequal market conditions.
I continue publishing a series of articles aimed at sharing steps and tips on how to learn penny stock trading techniques and make you feel confident in them. In this post, I will give you my insight on how to day trade hot picks/top penny stocks.
How Do We Choose Hot Picks?
So, what stock do we consider a penny stock? Usually the one that trades in a range of $1 up to $5. Of course, no one has cancelled the pennies and it is a great advantage to pick a stock below $1 as it has more potential to gain momentum. Therefore, our first market look journey starts with quotes of the abovementioned batch. In our case, we are using NASDAQ pink sheets.
From the above snapshot, you can view how volatile penny stocks are in terms of daily % gains or losses. But how do we know what stocks to pick? First off, let’s look at the prices. As mentioned earlier, all stocks below $1 have a great potential to skyrocket and even make you reach within a matter of hours. Volume size is essential here! 15k is a number of shares traded on a daily basis. From what I’ve noticed in the penny stock market so far tens of thousands of shares is not the volume you have to look for to ride a trend. Hundreds of thousands is our target here (100k is the min threshold). Therefore, we are moving on and filtering out the pink sheets by volume size. I would highly encourage everyone to monitor latest news on penny stocks including the evolvement of cannabis and pharmaceuticals markets.
So now we are good and seeing that vast majority of stocks is traded heavily below $1 (check out their daily gains too). By the way, I am not narrowing down the list of microcaps as my purpose here is to share all available tools of how to screen the markets. Giant investors are making billions each day so they are definitely aware of the top movers. Why don’t ordinary people find their own ways of trading penny stocks, huh?
When you finally find a stock to buy, make a little break (a couple of days would be enough) and do some research on the company. It helps you pull off more data regarding financials, profit ratios, balance sheet, etc. I understand that feeling when you plan on diving in right away no matter what driver is behind the penny stock price but patience is important here. It is going to be your partner across the entire trading period.
As you have already known the allure of penny stocks is in huge net profits. The more shares of stock you purchase the more return you get afterwards. It’s a very simple formula. However, the evolution of the market brings new stocks with extremely high (and low) volatility. I would strongly recommend to AVOID those penny stocks as it may turn out into a complete wipeout of your trading account.
The companies are working hard to raise the stock prices and thus keep their businesses afloat. The so-called insiders roll out the promotion campaigns to make more and more rookie traders buy their stocks to provoke demand. Unfortunately, the ultimate goal here is to pump up certain stocks and close out the positions at highs while leaving 95% traders broke. So, if you are reading this make sure you will avoid trading newly joined stocks with incredible 600-800% net change per day. I am quite conservative in trading microcaps so my setups start from 5% up to 20% (in case stocks hit a record). Please bear that in mind when conducting a hot picks research.
May the force be with your traders!