Learning how to find penny stocks pre-spike isn’t difficult… as long as you put the work in. I’ve spent decades studying penny stocks and the chart patterns that allow me to spot my penny stock winners.
But what if you’re just getting started? Selecting the right penny stocks to watch can seem daunting, but I’ve put together this article to help you learn how to find the best penny stocks to buy — ideally before they explode.
Let’s dig in…
Table of Contents
- 1 What Is a Penny Stock?
- 2 How to Pick a Potential Penny Stock Winner Pre-Spike
- 3 What Happens When a Stock is Overbought?
- 4 How to Pick a Potential Penny Stock Winner Pre-Spike
- 5 How to Tell When Stocks Will Rise
- 6 How to Select a Penny Stock Broker
- 7 Tips to Remember When Investing in Pre-Spike Penny Stocks
- 7.1 Utilize Chart Patterns
- 7.2 Monitor Unusual Trading Activity
- 7.3 Don’t Put All Your Eggs in One Basket
- 7.4 Set Stop Losses & Take Profits to Limit Risk & Reward Yourself
- 7.5 What Should You Consider When Picking a Broker?
- 7.6 Does the Broker Have an Online (and Mobile) Trading Platform?
- 7.7 Fees
- 7.8 Minimum Deposit
- 8 List of 5 Penny Stocks to Watch in 2023
- 8.1 American Battery Technology Co. (OTCQX: ABML) — The EV Battery Dip Buy Penny Stock
- 8.2 Expion360 Inc. (NASDAQ: XPON) — The EV Battery Multi-Day Runner Penny Stock
- 8.3 BigBear.ai Holdings Inc. (NYSE: BBAI)
- 8.4 Global Tech Industries Group, Inc. (OTCQB: GTII) — The Pump All-Star Penny Stock
- 8.5 Clean Vision Corp. (OTCQB: CLNV) — The Choppy Penny Stock on a Multi-Month Run
- 9 My Favorite Platform to Trade Penny Stocks
- 10 How to Protect Yourself from Penny Stock Scams
- 11 Join My Trading Challenge
- 12 The Bottom Line on How to Find Penny Stocks
What Is a Penny Stock?
A penny stock is a security that trades for less than $5 per share.
Although penny stocks can be found on the major Wall Street exchanges, I trade a lot of over-the-counter (OTC) penny stocks listed on the OTC Markets. There are three tiers of OTC markets: OTCQX, OTCQB, and pink sheets. OTCQX is the most-regulated market, while pink sheets are the least regulated. This means the lower you go, the more sketchy the stocks.
While understanding the nature of penny stocks is crucial, it’s equally important to explore the broader landscape of these investments. There’s a vast world of penny stocks out there, each with its unique characteristics and potential for profit. However, it’s essential to remember that not all penny stocks are created equal. Some may offer higher returns, while others might be more stable. It’s all about finding the right balance for your investment strategy. If you’re interested in diving deeper into this topic, consider reading our comprehensive guide on penny stocks.
A Comprehensive Penny Stock Guide
Penny stocks are the underdogs of the stock market, often overlooked, yet they have the potential to deliver substantial returns. They’re risky, volatile, and not suitable for all investors, but if you’re willing to stick to a good strategy, penny stocks could be worth exploring.
Just remember to never risk more than you can afford to lose.
How to Pick a Potential Penny Stock Winner Pre-Spike
How do I pick penny stock winners before they spike? I use technical analysis — support and resistance levels and patterns on the chart.
This is the bedrock of trading — but it has much less to do with investing. At its core, investing is about building a diverse portfolio that can withstand market fluctuations. One way to achieve this is by investing in dividend stocks. These stocks can provide a steady income stream, helping to offset potential losses from day trading. To learn more about how to analyze the fundamentals and technicals of dividend stocks, check out our article on investing in dividend stocks.
If you can read stock charts and find reliable patterns, you can sometimes find penny stocks before they spike. Does it work every time? Of course not.
However, the more you learn and study, the better your penny stock picks can become…
Where To Look for Penny Stocks
You can find penny stocks on the regular stock exchanges and the OTC Markets. Find securities that interest you, then review their basic data.
How long has the company been active? What has its previous price movement looked like? What does its volatility look like? What kinds of events influenced its growth? Spend time studying those charts and indicators.
In many cases, you’re looking for a catalyst, like exciting news about a product or development. These catalysts often precede spikes. When traders figure out that the company might have something going for it, they frequently strike.
Share price and valuation contribute to a company’s market capitalization (a.k.a., market cap). Penny stocks are typically considered micro-cap, which means they have a low valuation. But that’s not a bad thing.
Big-cap stocks are the major companies with huge valuations and high share prices.
Beware of Dilution
Dilution occurs when the number of outstanding shares increases. I avoid trading stock in a company that has recently had a number of its options exercised or issued new shares.
What Happens When a Stock is Overbought?
When a stock is overbought, it means that it has been aggressively purchased to the point where its price has likely been inflated and might be due for a correction. Identifying overbought conditions can help you avoid buying into a stock just as it’s about to take a nosedive. Remember, timing is everything in this game.
How to Pick a Potential Penny Stock Winner Pre-Spike
Traditional stock traders buy low and sell high. My students often take things one step further, both buying low and selling high, and then selling short when prices begin falling and buying to cover.
This can help us make a profit both on the way up and the way down.
In my “How to Make Millions” DVD, I go over my favorite catalysts that can cause stock spikes. If you want a front row seat to my favorite penny stock trades, sign up for the Supernova Alerts service to see them in action.
I’ve developed the following criteria and requirements for finding the best stocks to buy over my 20 years of trading. Learn them. Love them. And use these rules as you work toward being a better penny stock trader…
Rule #1 — Look For Stocks That Are Already Spiking
One of the quickest ways to identify a spike in the making is to start by using your stock screener to find stocks that are already moving.
You should be watching for news catalysts. With penny stocks, there are a lot of information inefficiencies. So even if you miss the initial news, you might still be able to catch a part of the move.
You also want to keep an eye on low-float stocks. These small-supply tickers have greater potential for big moves.
The flipside of this: you want to watch for volatility AND liquidity. Without enough liquidity, you won’t be able to exit your trade at the right time, potentially the difference between a profit and a loss.
Rule #2 — Look for Potential Breakouts That Are Reaching New Highs
I look for stocks that can break out to new highs — especially those still up on the day and holding morning highs.
If you see a play like this on a Friday afternoon and the stock’s still holding its morning high, there’s always the potential for a short squeeze into the close. Short squeezes are a play that all penny stock traders need to learn to recognize.
But always be ready to cut losses quickly. Sometimes when potential breakouts reach new highs, they can’t maintain their value above the previous resistance level.
Rule #3 — Bet on Price Action
Price action gives you the real story about a stock. Is it breaking out to a new high? Has it crossed VWAP? All the news sites in the world won’t tell you when these things happen, but a stock’s chart will.
Believe it or not, watching price movements can be educational. It sounds boring, but you’ll start to see patterns you wouldn’t have caught otherwise. Make it into a game. Which way do you think the stock price will move next?
Once you get a sense for a stock’s chart, start with small positions. Alternatively, try paper trading on StocksToTrade and get a feel for how it works without the financial risk.
Rule #4 — Do Your Research
I hate to say it, but a big reason most penny stock traders fail is because they’re lazy. They don’t want to do the research that my students learn how to do. They want someone to tell them what to do, but that’s not how I teach.
If you're lazy, I beg you to unfollow me & spare me from wasting a second of my precious life own your useless ass. Sorry to be harsh, but life is short and lazy people & I do not get along. Go make your excuses & whine about your issues to someone who has compassion for I do not
— Timothy Sykes (@timothysykes) February 6, 2022
I don’t want to give you fish. I want to teach you how to fish. That way, you can learn how to find penny stocks on your own.
Research is how I locked onto Paratek Pharmaceuticals Inc. (NASDAQ: PRTK) for a $4,350 profit in 2020 (starting stake $14,010). That same day, Eastman Kodak Company (NASDAQ: KODK) was going supernova off of news of federal funding for developing pharmaceutical ingredients. I follow industry trends, so I was looking for sympathy plays.
I remembered PRTK previously had news about federal funding as well. And it had the potential to spike as a lower priced sympathy play.
It had already spiked slightly on increased trading volume when I bought at $4.67. Then it sped up and was even halted. After the halt I sold at $6.12.
If you want to know how to find the best penny stocks to buy, remember to look for former runners, news, hot sectors, and sympathy plays.
Success requires hard work and determination. It takes the ability to do what other people won’t do. Proper planning isn’t fun, but it’s necessary.
Think Like a Retired Trader
If the rules I’ve listed above tell you anything, it should be that I don’t make a move unless there’s a good reason.
That’s why I like to think of myself as a retired trader.
I’m not going to come out of retirement for a so-so trade — just like a retired athlete won’t come back to play for a minor league team. I don’t waste my time, and neither should you.
Thinking like a retired trader can stop you from making emotional plays. You might not have a trade every day, and you can work to avoid falling into the overtrading trap. It’s how traders lose everything they’ve built.
I can teach you these patterns, but I can’t teach you the discipline it takes to be a successful penny stock trader. Only you can do that for yourself.
How to Tell When Stocks Will Rise
Crystal ball, anyone? If only it were that easy. Unfortunately, predicting the future isn’t part of the stock trader’s toolkit. But we can use tools and indicators to spot potential upward trends. Pay attention to high trading volumes, positive news releases, and a company’s overall financial health. And remember, trends are your friends. Stick with them, not against them.
Successful day trading also involves an understanding of price movements, market trends, and company fundamentals. Most of all, it requires the right knowledge and skills. For a closer look at what it takes to succeed in day trading penny stocks, we recommend reading our detailed guide on penny stocks day trading.
How to Select a Penny Stock Broker
The top penny stock brokers have reasonable fees and better executions. They’re also supportive and provide a user-friendly interface.
Tips to Remember When Investing in Pre-Spike Penny Stocks
Here’s the thing about pre-spike penny stocks — they can be a gold mine, but they can also lead you down a rabbit hole. You’ve got to be careful. So, how can you increase your chances of success?
Utilize Chart Patterns
Chart patterns can be your best friend. Recognize setups like flags, pennants, and head-and-shoulders to identify high risk-to-reward scenarios.
Monitor Unusual Trading Activity
Always be on the lookout for stocks with unusual trading volumes or price swings. This could be a precursor to a significant move.
Don’t Put All Your Eggs in One Basket
Diversification is crucial. Never put all your capital into a single stock, no matter how tempting it seems. Spread your risk across different sectors and industries.
Set Stop Losses & Take Profits to Limit Risk & Reward Yourself
Set strict stop losses to limit potential downside, and don’t forget to take profits when you can. It’s important to reward yourself and secure gains.
What Should You Consider When Picking a Broker?
Choosing the right broker is critical. Look for low fees, a reliable platform, excellent customer service, and easy access to the markets you’re interested in.
Does the Broker Have an Online (and Mobile) Trading Platform?
Find out whether you’ll have access to both an online and mobile version of the broker’s app. That way, if a trade goes against you, you can access your trading account whether you’re sitting at home in your pajamas or lounging by the pool at a hotel in Fiji.
Get a free copy of my book “An American Hedge Fund” to read about the trade I made from a highway rest stop.
When it comes to a broker, also make sure it offers great customer service. This is the company that will be holding your money and responsible for good executions. So when you have a problem, you want to be sure you can get through to someone and have any problems resolved quickly. Always check the customer service reviews page before deciding on a broker.
You’ll definitely want to know what you’ll pay for orders you execute with a broker. Although most brokerage services have gone to a commission-free structure, you’ll still have fees for locating shares to short, interest on borrowed shares, and monthly fees for real-time data.
Make sure you know the details before you get started.
Broker-Mandated Regulations for Trading Frequency
You probably won’t have to worry about this. Most places don’t require a minimum number of trades per month, unless they’re offering a rebate on monthly fees for higher-frequency traders.
If your broker requires you to trade at a certain frequency, bow out. As I mentioned before, you need to think like a required trader. If the stars don’t align, don’t trade.
Many online brokers don’t require a minimum deposit anymore. Of course, you’ll have to fund your brokerage account if you want to trade.
Do your own research on the minimum deposit requirement for the broker you’re interested in. Also remember you’ll be subject to the pattern day trader rule (PDT) if you fund your account with less than $25,000, no matter which broker you use. (Unless it’s offshore, which I don’t recommend).
List of 5 Penny Stocks to Watch in 2023
My list of the best penny stocks to watch in 2023 includes:
- (OTCQX: ABML) — American Battery Technology Co. — The EV Battery Dip Buy Penny Stock
- (NASDAQ: XPON) — Expion360 Inc. — The EV Battery Multi-Day Runner Penny Stock
- (NYSE: BBAI) — BigBear.ai Holdings Inc.
- (OTCQB: GTII) — Global Tech Industries Group, Inc. — The Pump All-Star Penny Stock
- (OTCQB: CLNV) — Clean Vision Corp. — The Choppy Penny Stock on a Multi-Month Run
No, that doesn’t mean that I’ll trade them. Learn the patterns that work best for you — you might see a chance to use them with these stocks!
American Battery Technology Co. (OTCQX: ABML) — The EV Battery Dip Buy Penny Stock
My first 2023 penny stock to watch is American Battery Technology Co. (OTCQX: ABML).
The great thing about this stock … it’s the gift that keeps on giving.
The first time I traded it was back in September 2020.
But past spikers can spike again. Between then and now I’ve squeezed a total of $21,903 out of this one ticker (click the link to see my individual trades).
The recent catalyst of a 140% ABML spike was the discovery of a massive lithium deposit.
Lithium is a major factor in the production of today’s high-tech batteries. Batteries used in things like electric vehicles…
The EV sector isn’t very hot right now, but with the right catalyst, we can still find quality spikers like ABML.
The EV market is only expected to grow.
Sure, high inflation discourages would-be consumers and high-interest rates make new EV projects more expensive … but this industry’s an inevitability.
Chevrolet just announced the last production year of its gas-powered Camaro. California’s banning the sale of new gas-powered vehicles by 2035. This is happening whether you like it or not.
And if that’s where the money’s going, that’s where I’ll be watching.
Expion360 Inc. (NASDAQ: XPON) — The EV Battery Multi-Day Runner Penny Stock
My second 2023 penny stock to watch is Expion360 Inc. (NASDAQ: XPON).
This is another lithium battery play.
Right now it’s consolidating near the highs of a multi-day run.
The strength in this niche is unbelievable sometimes … XPON managed to run more than 250% and there are still tons of opportunities.
Even if the price doesn’t go any higher, there will be volatility plays on the way down. That’s where we see intraday bounces.
That’s some of my favorite price action to trade.
Here’s a brand new video that explains my dip buy process …
This niche is rampant with speculation. That means my 7-step pennystocking framework applies.
BigBear.ai Holdings Inc. (NYSE: BBAI)
My third 2023 penny stock to watch is BigBear.ai Holdings Inc. (NYSE: BBAI).
This ticker is at the top of my artificial intelligence watchlist.
It spiked over 2,300% in 2023 already.
That was back when the AI sector was first taking off.
Since then, it’s slowed down considerably.
But that was mainly due to companies like Alphabet Inc. (NYSE: GOOG) dropping the ball after ChatGPT started on a strong note. Google couldn’t keep up and that soured sector momentum.
Then the banking crisis happened. That didn’t help at all …
A series of unfortunate events led to the AI slowdown.
But now Google is back with a revised software called Bard. The bank situation seems contained. Things are looking up.
A sector revival wouldn’t surprise me. And BBAI is my top watch.
Global Tech Industries Group, Inc. (OTCQB: GTII) — The Pump All-Star Penny Stock
My fourth 2023 penny stock to watch is Global Tech Industries Group, Inc. (OTCQB: GTII).
I still see GTII in my dreams.
The spike in September 2022 was the stuff of legend.
Six back-to-back green days and a spike that moved prices more than 590% higher.
I’ve managed to pull a total of $12,062 from this stock over the years (click the link to see my individual trades).
It makes me feel like a broken record to repeat this but … always remember that past spikers can spike again.
https://t.co/gIIuF22exF Former runners can run again, never forget!
— Timothy Sykes (@timothysykes) December 7, 2020
I continue to watch volatile stocks long after the spike because I know there are more opportunities ahead. And GTII proves that theory.
After September 2022’s move, we saw a 270% spike in December 2022 and a 290% spike in January/February 2023.
It’s only a matter of time before we see another surge from this stock. And I’ll be ready.
Watch for a hot catalyst and more volume to push the price higher.
Clean Vision Corp. (OTCQB: CLNV) — The Choppy Penny Stock on a Multi-Month Run
My fifth 2023 penny stock to watch is Clean Vision Corp. (OTCQB: CLNV).
This is another legendary runner from recent months.
There have been multiple spikes between October 2022 and now.
But I’ve actually been trading this stock since 2021.
All said and done, I’ve managed to profit $8,054 in total from these subsequent spikes (click the link for my individual trades).
As I’m typing this, the price is still consolidating above $0.05. That’s a key level to watch.
Tickers like to bounce between key price levels. They often occur around ‘psychologically significant’ numbers. In this case, numbers like $0.05, $0.10, $0.15 … multiples of five and ten, whole numbers, and things like that.
Here’s a video with more information …
I use these levels to plan trades and determine sentiment/direction.
If CLNV stays above $0.05, that’s a hint it may push higher. But if the price breaks below that level, it’s a bearish signal.
My Favorite Platform to Trade Penny Stocks
If you’re looking for my favorite penny stock trading platform, check out StockToTrade.
I might be a little biased (I helped develop the software and I’m an investor), but I think StocksToTrade is one of the best trading tools on the planet. It has custom stock screeners made by traders, for traders. You can use it for everything from paper trading to price event alerts.
You’ll have access to more resources, better-quality information, and high quality catalysts with the add-on alerts service Breaking News Chat.
I also have a NO-COST weekly watchlist of my stock picks. But this newsletter isn’t an example for you to copy — it’s for you to study the process.
Remember, do your own due diligence and make your own trades. Different people trade for different purposes, and your goals may not be the same as theirs.
How to Protect Yourself from Penny Stock Scams
The penny stock world is rampant with scams. New traders tell me how they’ve lost money buying and holding stock pumps ALL THE TIME. They usually fall victim to the hype and promises of big earnings.
- When you’re scanning for potential winners, look for insider buying and selling. This can be a sign that something fishy is going on.
- Follow social media trends to understand market sentiment. If a stock is buzzing on Twitter or Reddit, it might be worth a closer look.
Never listen to Internet stock promoters sending out mass emails about so-called no-risk penny stock picks. If you receive them, you’re probably the target of a pump and dump scam. Run the other way!
Promoters often inflate a penny stock’s price so they can profit. Naive traders lose because they’ve been tricked into thinking that penny stocks are long-term investments.
One of the best steps to protect yourself is to only listen to traders who show all their trades, like my students and I do on Profit.ly.
Tread with caution and seek advice from experienced traders if you’re not sure about a stock. And NEVER trade a stock because someone told you you should.
Potential Penny Stock Payoffs
Will you get rich tomorrow from penny stock trading? Probably not. Instead, develop a good basis for trading by investing in your education.
But that doesn’t mean everyone finds success or achieves profitability. Chances are, you’ll experience losses. You won’t make the right trading decisions and get big returns overnight. Trading is one of the hardest things you’ll ever learn, so be patient and study hard.
Join My Trading Challenge
I can teach you these patterns, but I can’t teach you the discipline it takes to be a successful penny stock trader. Only you can do that.
My blog is chock full of tips and useful articles… But if you’re ready to get serious and put in the time and energy needed to develop a good trading mindset, you should apply for my Trading Challenge! That’s where I teach the rules and patterns that have helped many of my students pave their way to financial freedom.
You won’t need to learn alone, either. You can make trading friends in my Challenge on the same path as you, so you can learn from multiple sources.
The Bottom Line on How to Find Penny Stocks
Becoming a better trader involves lots of research and work, but it can also be fun.
If you learn how to find penny stocks accurately and consistently, you might do well in the market. Over time, if you see profits add up, you’ll find yourself even more motivated to do the research.
What’s your favorite way to find penny stocks to trade? Let me know in the comments … I love to hear from my readers!