Penny Stocks 101 – How to Find Trades

Jason BondJason Bond ·

Don’t Be Afraid to Trade Penny Stocks

Nearly every market participant has wanted to trade penny stocks at one point. Penny stocks are popular due to the fact that they’re “cheap” and affordable to retail traders. If you’re looking to start trading penny stocks, but disinclined to do so because of something you saw in a movie…Get that thought out of your mind.

There are truths and falses to those movies. However, not all penny stocks are “pump and dumps.” There are actually penny stocks that are legit and tradeable. Those who want to trade penny stocks might be thinking they’ll become an overnight millionaire. Better yet, they might think they could find the next Apple Inc. (AAPL). Well, let me tell you something…trading penny stocks will take time and dedication.

Now, there’s a quick and easy way to learn how to trade penny stocks. One quick and easy to start is by reading a book with examples of how to trade penny stocks and the necessary steps to take. For now, let’s just focus on how to find trades, even if you haven’t opened a brokerage account yet.

Penny Stocks 101 – How to Find Trades

When you’re learning to trade penny stocks, you need to learn how to find trades. If you find a strategy that consistently makes money, then you should focus on that. Better yet, if a consistently profitable trader could show you the blueprint, then you’re well on your way to trading penny stocks.

That said, let’s take a look at how to start finding penny stocks to trade.

Remember, stocks under trading under $5 are considered penny stocks. Penny stocks don’t actually need to be trading around a nickel or a dime per share, according to the SEC.

Finviz is one of our favorite tools to use here at Raging Bull. It allows you to filter for stocks and patterns, which is great for trading penny stocks. For the most part, when you’re first starting to trade penny stocks, you need to focus on those traded on NYSE, Nasdaq or AMEX. Stocks listed on OTC Markets tend are best left for more experienced penny stock traders.

Now, let’s get to what you’ve been waiting for.

penny stocks

We’re using Finviz’ screener here. If you look at the screenshot above, I’ve simply filtered for stocks trading under $5, with an average daily trading volume of more than 750K and listed on NYSE.

Next, you can also filter for technical patterns. Something I like to do is look for stocks that have bottomed out, looking to make a move.

If you go under the “Technical” tab, you can filter for various technical patterns. In addition to the three filters above, I’ve added the “Multiple Bottom” filter.

penny stocks

These are two stocks that I might add on my penny stocks watchlist.

Keep in mind, this is just a starting point.

Again, you’ll need to gain experience by either trading small initially, paper trading, or learning from a successful penny stock trader.

Penny Stocks that Are Moving

One of my most profitable strategies is the Fibonacci retracement setup. You’ve probably heard of the Fibonacci numbers before in your math class, or maybe you’re into fractal geometry and heard that before. Well, don’t worry if you don’t know any math. Luckily, most charting software already calculates these for us. All you need to do is find a spot where the stock could potentially bounce from.

Again, you should develop an intuition over time. It took me some time to get good at using the Fibonacci retracement tool. However, I approached it with grit, and have learned what works and doesn’t work. For the most part, I try to find penny stocks that have already made a run up. There is a higher probability that the stock will retrace and we could find a support area to buy with.

Basically, we’re looking for an area where buyers are willing to step in and purchase the stock. Consequently, you’ll want to make sure the stock catches a bid before buying it. Otherwise, you’re just gambling and trying to catch a falling knife. Catching falling knives is painful, trust me…You don’t want to be buying a stock that’s dropping without a plan. Find an area where the penny stock bases because this could increase the odds of your trades actually working out.

Filtering Penny Stocks by Percentage Gainers

Typically, I’ll look filter for penny stocks making a large move.

If you go to the Finviz screener, you can filter for penny stocks that have been up today. I’ll generally sort by descending order.

penny stocks

I didn’t filter by market capitalization, because I’m comfortable trading micro- and small-cap penny stocks. Now, I’ll look at the charts after this, and if I see a high-probability pattern, I’ll put this on my penny stocks watchlist. Moreover, I’ll send this penny stocks watchlist out to the community so they know what I’m doing.

Ultimately, I’ll end up with something like this.

GBR – Solid volume bump today and big upside range between $3 and middle $4’s if it continues. The goal is 10,000 shares and $.50 / share on the way to low $3’s.

penny stocks

JONE – Energy stocks are hot and this one has shown the ability to jump big from $5’s to $11’s 2x in the last quarter. My goal is 5,000 shares and $1 / share profit in play above $5.

penny stocks

CEI – Just bought 80,000 shares at $.232. Energy is popping Monday and from what I read in their last press release, some news that would favor the stock is expected soon, likely this week I believe.

penny stocks

Once you found some penny stocks to trade, you need to develop a clear and concise trading plan. Thereafter, you should look to execute.

That said, let’s look at some penny stock trades.

Penny Stocks 101 – Trade Examples

Once I have a watchlist, I’ll look to buy those penny stocks if they get to my price. For example, Camber Energy Inc (CEI) was on my watchlist.

I bought 80K shares at $0.232 and thought the stock could catch a pop with energy prices moving up.

The stock ended up working out. Here’s what I sent out to the penny stock trading community.

“Sold 1/4 CEI at $.42 +81% or +$4000 more realized, riding 20k shares overnight goal $.50+, maybe $.60’s given there’s still a big catalyst looming. Now +$23000ish on the day and couldn’t be more excited for a Monday.”

The stock started moving again, and I sold more of my shares.

Sold 1/2 CEI +50% +$5000 at $.34 and am riding the other half for $.40’s. This one has the catalyst still or I’d have taken all my profit by now. I suspect we see $.40’s soon.”

The trade worked out awesome. I was stoked that some traders in the community banked on it too.

penny stocks

It’s not going to be an easy road when you’re learning how to trade penny stocks. However, if and when, you figure things out, it should be very rewarding.

Now, if you want to improve your risk-reward ratio, reading the Penny Stock Playbook can teach you how to locate inexpensive stocks with massive upside potential.

On the other hand, if you don’t want to start reading a book because you’re super busy. You can take just an hour or two of your time to get your feet wet in the penny stock trading world. If you’re interested into diving into the heart of small caps, you can see how this profitable trading strategy took me from debt to wealth and the simplistic system that you can learn in just 1 hour.

Penny Stocks 101 – Key Takeaways

When you’re learning how to trade penny stocks, you need to learn how to find trades. Now, you can learn how to do this on your own, or you can take a shortcut and learn from someone who’s already been through the trenches. For the most part, you need to learn how to generate ideas, while properly risk managing your trades. When you’re filtering for penny stocks to trade, you should look to only trade those listed on NYSE, AMEX or Nasdaq. Thereafter, you want to filter by volume because you need to be able to get into and out of your positions easily. Moreover, you might want to filter by industry, market capitalization, fundamentals, and technicals.

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Jason Bond runs JasonBondPicks.com and is a swing trader of small-cap stocks.

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