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What Are the Best Penny Stocks to Buy Now? Know All About Penny Stocks Trading

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Written by Timothy Sykes
Updated 9/16/2023 15 min read

What are the best penny stocks? For the purposes of sustainable trading, no penny stocks are the “best” — but that doesn’t mean you can’t trade them.

To hit your trading plan’s price targets, you’ll need to unlearn everything you know about investing and trading. In the world of penny stocks, ratings and valuations are irrelevant. Dividends are counterproductive. The things that matter aren’t the patients that their products will serve or the trials they’ll pass — they’re the excitement that they generate.

You can trade penny stocks in bankrupt Canadian pot companies and sketchy crypto ventures. I’ve been teaching for over a decade, and this is one of the questions I get most often…

In my experience, it isn’t about picking the right stock, it’s about paying attention to the patterns that these stocks tend to follow.

What exactly are penny stocks? And more importantly, how do you identify the best penny stocks to buy now?

What Are Penny Stocks?

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Penny stocks are shares of small companies that trade for less than $5 per share. They’re not the big players on Wall Street, they’re not the household names you see on the Nasdaq or NYSE. They’re the small businesses, the startups, the companies that are just beginning to make their mark in their respective industries.

But don’t let their size fool you. While they may be small, these companies have the potential to deliver substantial returns. With the right research and a commitment to the principles I teach, penny stocks can deliver positive results.

While penny stocks can be a high-risk, high-reward strategy, they’re not for investing. Consider exploring other investment strategies such as investing in dividend stocks. Dividend stocks can provide a steady income stream, balancing the volatility of penny stocks. Diversification is a key principle in mitigating risk and achieving long-term financial goals.

Benefits of Investing in Penny Stocks

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First off, I never invest in penny stocks — I only trade them.

Do yourself a favor and memorize this chart:

It’s the basis for my 7-step pennystocking framework. Trading the chart patterns that penny stocks often follow, in combination with the momentum from events like the announcement of new products and services, is how I’ve made most of my $7.4 million in career earnings.

The allure of penny stocks lies in their potential. These stocks offer the possibility of significant gains, often in a short period. For people willing to do the work, they’re a high-upside area of trading to explore.

Day trading penny stocks is the strategy I recommend. Day trading can help you take advantage of short-term fluctuations in stock prices. However, it requires a solid understanding of the market and a well-thought-out strategy.

Research and Analysis for Penny Stocks

Now, let’s get down to the nitty-gritty. How do you find the best penny stocks to trade? In my 20-plus years trading penny stocks, I’ve found that it all starts with research and analysis.

Once you’ve done your due diligence, remember to study their charts. My method for finding penny stocks pre-spike can help you identify these patterns. Remember, the more informed you are, the better your chances of making profitable trades.

Market Capitalization

Market capitalization, or market cap, is a key factor to consider when evaluating penny stocks. It’s a measure of a company’s size, calculated by multiplying the company’s share price by its number of shares outstanding. A higher market cap often indicates a more established company, but it’s not the only factor to consider.

When it comes to penny stocks, a higher market cap can often be a double-edged sword. On one hand, it can indicate that the company has a solid foundation and is less likely to go under. On the other hand, it can also mean that the company’s stock is less likely to experience the dramatic price swings that can lead to big profits.

Cheap Stocks vs. Low Volume Stocks

Not all penny stocks are created equal. Some are cheap because they’re undervalued, while others are cheap because they’re not very good. Similarly, some stocks have low trading volumes because they’re undiscovered gems, while others have low volumes because no one wants them. It’s crucial to understand the difference.

When evaluating penny stocks, it’s important to look beyond the price. A low price doesn’t necessarily mean the stock is a bargain. Similarly, a low trading volume doesn’t necessarily mean the stock is a hidden gem. It’s important to look at the company’s fundamentals, its industry, and its growth potential to determine whether it’s a good stock to trade.

Stock Screener Tools

Stock screener tools can be a penny stock trader’s best friend. These tools allow you to filter stocks based on various criteria, such as market cap, price, volume, and more. They’re a great way to narrow down your options and find potential trades.

When it comes to stock screener tools, StocksToTrade is first on my list. It’s a powerful trading platform that integrates with most major brokers. I helped to design it, which means it has all the trading indicators, news sources, and stock screening capabilities that traders like me look for in a platform.

Grab your 14-day StocksToTrade trial today — it’s only $7!

Earnings Per Share (EPS)

EPS is a measure of a company’s profitability. It’s calculated by dividing the company’s net income by its number of outstanding shares. A higher EPS often indicates a more profitable company, but it’s not the only factor to consider.

When evaluating penny stocks, it’s important to look at the company’s EPS in relation to its price. A high EPS is a good sign, but if the stock’s price is also high, it may not be a good value. Conversely, a low EPS may not be a bad sign if the stock’s price is also low.

Price to Earnings Ratio (P/E)

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The P/E ratio is another key metric for evaluating penny stocks. It’s calculated by dividing the company’s share price by its EPS. A lower P/E ratio often indicates a more undervalued stock, but it’s not the only factor to consider.

When evaluating penny stocks, it’s important to compare the company’s P/E ratio to those of other companies in the same industry. A low P/E ratio can indicate that the stock is undervalued, but if other companies in the industry have even lower P/E ratios, it may not be the best value.

Cash Position & Revenue Growth

A company’s cash position and revenue growth are also important factors to consider. A strong cash position can help a company weather tough times, while strong revenue growth can indicate a company’s potential for future success.

When evaluating penny stocks, it’s important to look at the company’s cash position in relation to its debt. A company with a lot of cash and little debt is in a strong financial position. Conversely, a company with little cash and a lot of debt may be in financial trouble.

Thomas Niel Methodology for Finding Value Stocks

The Thomas Niel methodology is a popular strategy for finding value stocks. It involves looking for stocks with strong fundamentals, such as high EPS and low P/E ratios, that are trading at a discount to their intrinsic value.

This methodology can be particularly useful when evaluating penny stocks. Because these stocks are often overlooked by mainstream investors, they can often be found trading at a discount to their intrinsic value.

Hot Penny Stocks: InvestorPlace’s List of the Best Penny Stocks to Buy Now

InvestorPlace is a popular source for hot penny stock picks. Their list of the best penny stocks to buy now is a great place to start your research, but remember, always do your own due diligence before trading.

InvestorPlace’s list is compiled by a team of experienced analysts who use a variety of factors to identify potential investment opportunities. These factors include the company’s fundamentals, its industry, its growth potential, and its current price.

How to Buy Penny Stocks?

So, you’ve done your research and found a penny stock you want to trade. Now what? How do you actually buy penny stocks?

Major Exchange vs. Penny Stock Territory

Penny stocks can be traded on major exchanges like the NYSE and Nasdaq, but they’re also often found on over-the-counter (OTC) markets. It’s important to understand the difference, as trading on OTC markets can come with additional risks.

When trading on a major exchange, you have the protection of stringent listing requirements and regulatory oversight. On the other hand, OTC markets are less regulated, which can increase the risk of fraud and manipulation.

Decide on Risk Tolerance Level

Before you start trading penny stocks, it’s crucial to decide on your risk tolerance level. Penny stocks are inherently risky, and it’s important to only trade with money you can afford to lose.

Determining your risk tolerance involves considering your financial situation, your investment goals, and your comfort level with volatility. If you’re not comfortable with the idea of potentially losing your entire investment, penny stocks may not be the right choice for you.

Types of Orders When Trading Penny Stocks

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When it comes to trading penny stocks, there are a few different types of orders you can place.

Limit Orders

A limit order is an order to buy or sell a stock at a specific price. This type of order gives you control over the price you pay or receive for a stock, but there’s no guarantee that the order will be filled.

Limit orders can be a useful tool for penny stock investors. Because penny stocks are often volatile, a limit order can help you avoid paying too much for a stock or selling it for too little.

Market Orders

A market order is an order to buy or sell a stock at the best available price. This type of order is likely to be filled quickly, but you have less control over the price.

Market orders are VERY risky. Because penny stocks are often thinly traded, a market order could be filled at a price significantly different from the current market price.

It’s basically a blank check to a market that wants you to blow up.

Compare the Best Penny Stocks

Now that you know how to buy penny stocks, it’s time to start comparing your options. Look at factors like market cap, EPS, P/E ratio, cash position, and revenue growth to find the best penny stocks to buy now.

Comparing penny stocks involves looking at a variety of factors. In addition to the factors mentioned above, you should also consider the company’s industry, its competitive position, and its growth prospects.

Features to Look for in Penny Stocks

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When evaluating penny stocks, there are a few key features to look for.

Low Liquidity

Penny stocks often have low liquidity, which means there aren’t many buyers or sellers. This can make it difficult to buy or sell shares without affecting the stock’s price.

Low liquidity can be a double-edged sword. On one hand, it can make it difficult to sell your shares if the stock’s price starts to fall. On the other hand, it can also create opportunities for large price swings, which can lead to big profits if you’re on the right side of the trade.

Limited Historical Data

Many penny stocks are relatively new companies, which means they may not have much historical data to analyze. This can make it more difficult to predict the stock’s future performance.

Limited historical data can make it difficult to evaluate a penny stock’s fundamentals. However, it can also create opportunities for traders who are willing to do their own research and dig deeper into the company’s financials.

High Volatility

Penny stocks are known for their high volatility. This means their prices can change rapidly in a very short time, which can be risky, but it also provides the potential for high returns.

Low Cost Per Share

One of the main appeals of penny stocks is their low cost per share. This allows traders to buy a large number of shares with a relatively small investment.

The low cost per share of penny stocks can make them an attractive option for traders with limited capital. However, it’s important to remember that the low cost per share doesn’t necessarily make them a good value. It’s still important to evaluate the company’s fundamentals and growth prospects before making a trade.

Why Invest in Penny Stocks?

I would NEVER advise you to invest in penny stocks… But if you’re looking for a high-potential trading niche, penny stocks offer quite a few advantages.

They offer the potential for high returns, and less competition than other parts of the trading world.

31 of my Trading Challenge students have become millionaires by trading the penny stock patterns I teach. That’s the best reason I can give.

Key Takeaways

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Trading penny stocks isn’t for everyone, but with the right research and a clear understanding of the risks, it can be a profitable venture. Remember to always do your own due diligence and never risk more than you can afford to lose.

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

Apply to the Trading Challenge here.

Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

Do you trade penny stocks? Let me know in the comments — I love hearing from my readers!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”