7 Things to Look for When Choosing Penny Stocks

7 Things To Look For When Choosing Penny Stocks

choosing penny stocks

Choosing Penny Stocks

How do you go about choosing penny stocks? After all, there are literally thousands of stocks to choose from, and new ones being listed every day. This has the potential to make you, as a trader, feel totally overwhelmed. So, how do you even start to narrow it down? 

Download the key points of this post as PDF.

While every trader has to develop his or her own method of choosing stocks — watch my videos HERE and HERE and HERE for examples of various penny stocks setups that have worked well — there are certain tips that can be helpful to traders of all levels. Here are seven things to look for when selecting penny stocks that you might consider in your own trading.

1. Do some basic research on the company. One of the first things you want to do when deciding on a stock is to give the company in question a quick Google search. No, this isn’t going to provide all of the answers. However, quite often this quick and easy step can give you enough information to determine if this stock is worth your time and research.

For instance, if things seem really sketchy and it’s hard to find information on the company in question, this could be a bad sign. Ultimately, it’s your decision to make, but start by doing a little research on the company itself to determine a stock’s value.

2. Volatility. One of the next bit things you’ll look for when choosing a penny stock is stock price volatility. With penny stocks, you don’t necessarily want stocks that are moving slowly or downtrending for months at a time, rather, you’re looking for stocks that are rapidly spiking. The stocks that are moving quickly are where you can make money as a penny stock trader.

These days, there are plenty of tools by which you can sort big gainers and losers, which can help you establish a good starting point from which to sift through those stocks and decide which ones to buy, but I would use this great tool since no other platform is built specifically for penny stocks and far too many websites and platforms out there ignore some of the biggest % gainers just because they’re low priced stocks…the discrimination is real and while it’s laughable, missing one or two great plays per week or even per day can be the difference between you becoming my next Millionaire trading challenge student or not.

3. Volume. It’s a common rookie mistake: you get so fixated on looking for stocks that are moving that you neglect to look at volume. This is a huge error and one that can ultimately lose you money. The fact is, volatility is not the only factor that can help you determine strong choices when choosing penny stocks, liquidity matters too and no matter how enticing a company’s press release may look, if there’s not much volume behind it, don’t trade it.

The volume is the number of shares that are changing hands under a given day. As a trader, it’s important to begin to piece together the puzzle by looking at movement and volume, which can give you a more accurate look on the activity and viability of a stock to trade, normally I don’t like trading stocks with under 200,000 shares traded per day and if I wanted to be conservative I would go with 500,000 just to be extra-safe.

4. Catalyst. To advance your choice of stocks, be sure to consider a catalyst as well. Once again, a catalyst is what it sounds like: a thing that precipitates an event. In the stock market, a catalyst might be an event or release that is poised to raise the value of a stock.

Let’s offer an example. Say that you read a press release from Penny Stock Company X informing consumers that they are releasing a new product. Potentially, this new release could have a big impact on the value of that stock, so it may be a good time to buy now, before it hits the mainstream. A new product is only one example; you might look for mergers, sales, and / or other developments. Being able to scout the news and the world for events can give you insight to what types of catalysts might be worth your while and make a stock worth the investment.

5. What others are saying. Yes indeed, it’s good to listen to the buzz on the street about penny stocks. But let me be completely clear. When I say that it’s good to listen to what others are saying about a particular industry or stock, this doesn’t mean you should ever blindly follow another penny stock trader or promoter’s lead when it comes time to buy.

In the Tim Sykes Millionaire Challenge, one of the biggest things I want to impart is that you need to think for yourself. Learning all you can and observing what works for others is not so that you can copy what others are doing. Rather, it’s by learning and observing that you can begin to forge your own path and create a career as  trader that is authentic and appropriate for you. So yes, look to what others are doing and saying when choosing penny stocks, but ultimately, make decisions based on your own experience.

6. Patterns. It’s commonly stated that history repeats itself. Well, as I have discovered, history never repeats itself to the letter. However, it often gives you very powerful clues as to what may and may not work. For instance, if you have had the experience of trading a stock that you felt really good about where a company had great volume, great movement and a catalyst but things flopped, there may be aspects of that trade that can inform you in the future. Analyze what works and what doesn’t about trades so that you can make educated decisions about investments in the future. Keep a log of your trades and allow it to help you mitigate risk next time!

My student Tim Grittani, who is one of the biggest success stories from the Tim Sykes Million Challenge Team, is great at identifying patterns. And, for your benefit, he is transparent about his trading. Learn from him and use him as an example of what’s possible for your own trading.

7. The time of day. Not to explode your mind, but all bets can be off depending on the time of day. Yes, it’s true: The best types of stocks to choose will vary depending on the time of day. The same stocks that make for a great play in the morning might not be the same as mid-day or afternoon; you’ll learn how to tell the difference and what to look for at various times of day and why.

See this great penny stock pattern that I really prefer trading only in the morning.

To a certain degree, this is something that you will learn as you go, but it’s important to know that there are many different variables when choosing penny stocks and that it’s important to always stay on your toes.

Choosing penny stocks depends on a number of different factors. By looking at the elements and attributes listed in this post, you’ll have a leg up on choosing the best penny stocks to make you money…see this free guide for more details and study up, 90% of traders lose not because they’re dumb or because this is that difficult, it’s due to lack of preparation, so don’t make that mistake!

Which indicator do you like best? Leave a comment below and tell me why! 

Posted in Basics

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53 comments

Timothy Sykes

Hey Everyone,

As many of you already know I grew up in a middle class family and didn't have many luxuries. But through trading I was able to change my circumstances --not just for me -- but for my parents as well. I now want to help you and thousands of other people from all around the world achieve similar results!

Which is why I've launched my millionaire challenge. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you.

So when you get a chance make sure you check it out.

PS: Don't forget to check out my free Penny Stock Guide, it will teach you everything you need to know about trading. :)

  1. David Senften

    Catalysts first-These help me gain confidence that I might have an edge before I enter a trade. Nothing worse than going in blind!!

    Pattern second-Working on dip buys at the moment based on what I learned at the #TISummit! I’m looking for the big dive into a bounce at a former resistance level that may now become support.

    It has not been an easy journey but my losses are cut early!!

  2. Danny Denny

    I love reading your blogs. I’m a complete beginner and As I prepare to purchase your “How to make millions” DVD and begin to learn…. I watch the markets just looking for the one pattern that I understand so far and that’s the dip buy! Watching the the OTC markets just putting what I’ve read to the test…. your dip buy pattern is damn near there EVERYDAY! As I build up to study more and more of your stuff…. it gives me hope that a hard working country fella can change his and his families life buy learning from you and your knowledge

  3. Louis Horvah

    Hello Timothy,

    Thank you, for this blog. After 9 months of being a dedicated student, watching Goode, Gritanni, Wolf, Dux, Crooke and your video lessons almost everyday and every weekend I studied my ass off. I finally, got my TOS scanner platform setup and excel spreadsheet perfectly, I know its not STT (which is the best penny stock platform out there). Been paper trading to get use to the volatility and put my watch list together and compare it to your watch list every night and pretty much almost same tickers. I’m going to deposit $500 tomorrow to be prepare for Friday’s squeeze and look for my pattern #3 or wait after Pattern #4 when the momentum snaps pattern #5 dip buy. I’ll be looking for singles or maybe doubles. If not, I will cut my losses quickly or just don’t trade at all.

  4. Tim Vaughn

    Thanks for another great post Tim. I like to watch for high of day breaks on stocks with good volume and some volatility. I like it better when it’s not approaching midday, but lately seems like lots of these like to make midday moves, rather than waiting for post 2pm moves, so have to adapt, as always. Thanks again Tim.

  5. Travis McReynolds

    Thanks Tim. My favorite indicator is share float. It more often than not seems to provide an accurate gauge of volatility. But I love every aspect of this game.

  6. DNN

    That grilled chicken and scrambled egg looks good, brother. Say, when you were transitioning from your middle class family to millionaire status…how long do you estimate it took you to achieve that full circle?

  7. Monica

    Tim you are a genius. Thank you for sharing these valuable life changing information. You were a millionaire long before you knew it, because ‘ you give back, you shared your knowledge’. ..

  8. Katherine Crawford

    #5 What Others are saying
    I think strong positive news is something to definately take into consideration and investigate. I heard you say when an iphone is mentioned pay attention. Michael Goode just gave an example in a webinar of how bad news caused a stock to plummet.

  9. L. Jermaine Russell

    Thank you Captain for these guidelines to follow. It’s a useful reminder of how to remain disciplined as a successful trader.

  10. Fred Cannon

    Awesome, how did I miss this when 1st published? Maybe trying too hard to take in too much too quickly? I had figured out some of this on my own, especially google searches and setting up google alerts for keywords in my gmail account. I’m trying to pay attention to chatter but sometimes all that noise gets distracting. I must, must, must get better at pattern recognition but I guess that only will come with time and experience. I’ve just started recognizing time of day as a major factor but again time and experience will be important ally here. I’m starting to think my wins have been almost a matter of luck more than knowledge, although I’ve been doing the right things when I’ve lucked into those picks thanks to you. My losses are great tools to try to figure out what I did wrong, been going over and over them trying to pick them apart. All the great info you provide helps me gain clarity there. Thanks again for all you’re doing.

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