Penny Stocks: What They Are and How to Trade Them in 2021🥇

Last updated on September 22, 2021
penny stocks

 

Penny stocks are usually small companies. They might be new, they might be in an up-and-coming sector, or they might even be in danger of going out of business.

I’ve made millions trading penny stocks.*

That’s not typical. But I’ve done it, and so have other traders…

Like Tim Grittani, who’s up more than $13 million* in profits…

Or Mark Croock, who’s made more than $2.5 million* in profits…

Or Michael Goode, who’s made over $2 million.* He actually thought I was full of BS before he gave my strategy a try. Now he’s glad he came around!

And this year, several young traders who’ve been through my Trading Challenge hit big trading milestones.*

Do I have your attention? Good. Let’s talk about one of the most hated — and misunderstood — trading styles out there: day trading penny stocks.

 

Let’s be real. You probably found this post by googling something like “how to get rich quick trading penny stocks.” Sorry. You won’t get rich quick in this niche. But I can teach you what I’ve learned in more than two decades in the stock market to help you shorten your learning curve.

There’s not some big secret to finding consistency trading penny stocks. It’s about hard work, discipline, and studying. You have to work for slow, steady progress and small wins over time.

Table of Contents

The Key to How I Trade Penny Stocks

Tim Sykes studying and trading
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There are three keys to how I trade penny stocks — knowledge, preparation, and experience.

Build Your Knowledge Account

The knowledge you need isn’t infinite, but at first, it can seem overwhelming. This guide scratches the surface with trading terms, patterns, and rules. It answers frequently asked questions. But to become a top trader, you’ll need to focus on education.

Prepare, Prepare, Prepare

Preparation is where most traders fall short. My strategies revolve around trading the most volatile stocks in the market. That means you must come prepared. I suggest reading this post about the Sykes Sliding Scale. Then go through my “Trader Checklist Part Deux” guide. It explains, in detail and with live examples, the seven indicators I use to prepare for every trade.

Stay in the Game and Gain Experience

There’s no replacement for experience. The most important thing you can do is to stay in the game. Unfortunately, most traders fail to gain enough experience to get consistent.

No matter how much you study, getting good means screen time and trade time. That’s why I always suggest new traders start small and size up over time. Learn to take singles and cut losses quickly. Focus on the process.

All successful traders have go-to patterns. And they all practice risk management. Learning what works best for you and how to manage risk takes time. Never underestimate the value of experience. Top Tip: All my top students have been trading for three years or more.

Ready to get started with penny stocks? We’ll cover what they are, how to get started, and how this style of stock trading is different from any other.

Penny Stocks and Penny Stock Trading: Definitions

In spite of the name, ‘penny stock’ actually refers to a stock trading for under $5 per share.

Sure, they could be stocks trading for fractions of a penny, but even a stock trading for $4.95 is still considered a penny stock.

Pennystocking as a verb just means trading penny stocks. But that’s not to say that pennystocking follows the same trajectory as buying and selling regular stocks of large-cap companies like Google or Amazon.

Pennystocking is a unique style of trading that requires a specific strategy and mindset. To start to understand what that means, let’s get into the mechanics of penny stocks.

How Penny Stocks Work

What if I told you I don’t believe in any of the penny stocks I trade?

I know, it sounds pretty cynical — and counterintuitive.

Generally, people think the stock market’s all about finding a company you believe in, then buying and holding its stock for years.

Penny stocks are the opposite. The fact is, most penny stocks will eventually fail. But before they fail, they can experience massive spikes.

Because of their small size, these companies feel the impact of just about any news catalyst in a big way.

A single press release could cause crazy spikes in a stock price … Here’s one example from mid-February when Kronos Advanced Technologies Inc. (OTCPK: KNOS) spiked over 100% in less than an hour.

penny stocks knos chart
KNOS chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com

As a penny stock trader, my approach relies on finding patterns within these kinds of spikes and taking advantage of short-term price movements in the market.

Remember: these aren’t long-term holdings like blue-chip stocks. The goal is to take advantage of the short-term movements of a volatile market with tight risk management.

Watch These Penny Stocks in 2021

At any given time, there’s a trending sector or two in the stock market.

But since the crash in early 2020, the stock market’s been on fire. Volatility’s been unlike anything I’ve ever seen.

The best thing traders can do during times like these? Be prepared.

I’m prepared. My students are prepared. When the market provides opportunities, we’re on top of them.

I made more than $1 million in 2020 — as opposed to about $125K in 2019.*

It’s not because I suddenly got a lot smarter. And it’s not because I started with a bigger account. I start each year fresh with a small account because my focus is on teaching. But the opportunities have been there.

The market right now is exceptional. Are you ready?

To get up to speed, check out “The Volatility Survival Guide.” This is my no-cost, two-hour guide to help you understand the current volatile market. And it can help with any future market volatility, too.

I also maintain a list of monthly penny stocks to watch.

You can start your trading journey with my new 30-Day Trading Bootcamp. Trading Challenge moderator Matthew Monaco helped me put this together. Even some more experienced traders are amazed by this guide. And the price is outrageously low.

Learn more about the 30-Day Bootcamp here. (FYI, you don’t have to complete it in 30 days. You can go through it at your own pace and repeat it as often as you need.)

Top 10 Penny Stocks by Stock Exchange

OTCs are my favorite penny stocks to trade. But you can find penny stocks on the NYSE, Nasdaq, and AMEX, too. The tables below are the top 10 penny stocks I’m watching listed by stock exchange.

Top 10 NYSE/AMEX Penny Stocks

 

Top 10 Nasdaq Penny Stocks

 

Top 10 OTCQB/OTCQX Penny Stocks

 

Top 10 OTC Pink Penny Stocks

Be sure to visit this page often to see what stocks I’m watching at any given time.

Examples of Recent Penny Stock Runners

One of the reasons I love penny stocks is their ability to spike. They can run 100%, 200%, or even 300% in a day. In 2021 we’ve seen several 1,000%+ spikes in just a few days. The three stocks below are examples of recent penny stock runners.

Keep in mind that I don’t consider any penny stock company to be a good long-term investment. To me, penny stocks are trading vehicles. So as you study these recent penny stock runners, notice how fast they can fall, too…

Bergio International, Inc. (OTCPK: BRGO)

BRGO is a consumer cyclical stock. The company designs and manufactures jewelry and sells it to retail stores across the U.S. On May 12, it announced it will acquire a 51% stake in GearBubble, an e-commerce platform.

The stock spiked from below a penny to over 3 cents. And it traded extremely high volume. Plus, this stock’s a former runner. It’s a good example of what I look for in the stocks I trade.

 

Green Globe International, Inc. (OTCPK: GGII)

GGII is a hemp and CBD company. It could spike on federal news of marijuana legalization or decriminalization.

Recently, it spiked on news of new company management. The press release also hinted there will updated filings on the OTC Markets website in a few weeks. That’s another catalyst to watch for.

My first trade on this stock was on April 23 after it followed my first green day pattern. It was a big percent gainer the day before. Then it gapped up, and I caught a piece of the morning spike. Between April 23 and May 12, I traded GGII 10 times for total profits of $13,109.26.*

As of this writing, the stock had its first red day. But there are still lots of potential opportunities to trade this stock. Especially if the volume keeps up and it follows my 7-step framework. Or if there’s a news catalyst in the future.

 

Organicell Regenerative Medicine, Inc. (OTCPK: BPSR)

Organicell Regenerative Medicine is a biotech company. It’s been a hot sector so far in 2021. And this stock rode the hot sector momentum…

It spiked on April 28 after it announced positive trial results for its potential COVID-19 treatment.

I dip bought this stock multiple times on its run-up. Then I bought the morning panic on the first red day. (See all my BSPR trades here.*)

Biotech stocks can run on hype and BS press releases. This one’s worth watching for news catalysts and high volume.

 

Is Trading Penny Stocks Illegal?

If everything you know about penny stocks came from movies and TV, you might think that they’re illegal.

False. Trading penny stocks is completely legal. 

But it is true that penny stocks can be super shady.

Yes, some penny stocks trade on big exchanges like Nasdaq. But many trade through OTC (over-the-counter) exchanges.

There’s a world of difference in terms of standards between OTCs and Nasdaq- or NYSE-listed stocks. The regulations aren’t as stringent for OTCs, which means there’s a lot more potential for fraudulent behavior.

Here’s the thing … As a penny stock trader, this can actually work in your favor.

There are a ton of schemes around penny stocks, like pumps and overhyped promotions … Your job is to see through them, outsmart them, and take advantage of the short-lived spikes they can create in the market.

Penny Stocks and the SEC: Know the Rules

The SEC’s rules for penny stocks vary depending on where a stock trades.

Listed stocks (NYSE, Nasdaq, etc.) have strict listing requirements, including financial filings and reporting any material changes that affect the business or the stock.

Stocks trading on the OTC markets don’t have as many requirements — pink sheet stocks have none. That’s why it’s a buyer-beware market. And it’s why I get in and out of trades on these stocks quickly. I don’t invest in penny stocks and I never hold and hope.

The Right Way to Start Trading Penny Stocks Today

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What’s the wrong way to trade penny stocks?

Believe that these tiny companies will change the world, then cry about your decimated account when the stocks inevitably crash and burn.

Sure, a penny stock could turn into the next big thing. But it probably won’t. 

So what’s the right way to trade penny stocks?

Trust no one. Know in your heart that most of these companies won’t succeed … but they could experience some huge spikes before they fade into oblivion.

Once you recognize that most of these stocks will fail, you can learn to trade like a sniper.

There are two key ways to trade penny stocks: long or short.

Going long: In spite of the term, “long” in my trading strategy usually refers to a short-term, buy-and-sell trade. For me, it’s a short-lived affair … intense, then over. OK, sometimes it happens again if the opportunity is right with a repeat runner…

You might see me holding overnight, but you won’t see me holding for weeks or months.

Going short: This means short selling a stock. As a short seller, you operate under the belief that the price will drop.

You borrow shares that you don’t already own from a broker, then sell them when the price drops. Then, you buy them back at the lower price, give them back to the broker, and keep the price difference. Sounds strange, I know, but it’s a thing.

Regardless of whether you go long (buying then selling) or short (borrowing, selling, then buying back), the goal is always to generate a profit. The profits might be small, but they can add up over time.

Is This Penny Stock Trading Guide Right For You?

Let me make it clear that this guide isn’t for people who want to get rich quick.

In spite of what some jerk may say in a YouTube ad, there are no guarantees in the stock market. For every person who strikes gold, there are hundreds  –– thousands! –– who blow up their accounts.

Most traders fail. This guide is for those of you who want to trade smart.

It’s for traders who want to understand penny stocks and work toward their goals the right way … over time and with discipline.

Boring, right? I’ll confess: trading isn’t always fun. Executing an order is exciting … But it’s a lot of research, scanning, keeping watchlists, working hard, and waiting for the right setups.

(Sign up for my no-cost weekly watchlist here.)

Truth: for me, trading penny stocks was about getting rich … at first. And I’ve made over $7.1 million trading these sketchy stocks.

Early on, I bought a bunch of fancy cars … It was great to make my childhood dream a reality, but now I’m over it. Now I donate all my trading profits to charity. And these days, I get the most joy from teaching and my charity Karmagawa.

These might not be your goals. My point? Goals can change. Trading penny stocks could be part of you reaching them, whatever they are.

Stocks vs. Commodities vs. Derivatives vs. Real Estate

There’s a ton of confusion between “investing” and “trading.” Let’s talk about it.

Investments are all over the place: things that you can put your money into with the hope of a return.

I’m not a penny stock investor or an investment advisor — I’m a trading educator who specializes in penny stocks.

Even though I’m a short-term trader and not a long-term investor, I think it’s important to understand investment basics. After all, most rich people have more than one stream of income.

There are four basic categories of investments: stocks, commodities, derivatives, and real estate.

  • Stocks are shares of a company. You can buy shares at a particular price, and sell them for either a profit or loss.
  • Commodities are physical substances or raw materials that come from the earth. Think gold, silver, oil, wheat.
  • Derivatives are investments that take their value from something else. Options are an example of a derivative … Instead of buying or selling a stock directly, you create a contract with the option to buy or sell a certain number of shares at a specific date.
  • Real estate is a whole different thing. There are various styles of investing in real estate, including flipping houses sold at auction, renting properties to tenants, developing commercial spaces, and so on. It’s not my scene, but you do you.

Penny Stocks: Know the Full Story

Penny stocks aren’t like other stocks.

These are NOT stable, established companies. They’re usually small. They might be new and in an up-and-coming sector. Some might even be in danger of going out of business.

This part’s important: Unless these companies are listed on a bigger exchange, they’re not required to make the same SEC filings as their bigger counterparts.

This means you can’t take things for granted with penny stocks like you might with bigger companies.

Yep … penny stocks can be sketchy.

But it also means that if you’re willing to spend the time to do a little research and look at the charts, you might agree with me that they’re actually pretty simple to trade.

supernova placement

 

I personally think that you can learn to trade penny stocks a lot faster than you can learn about trading larger securities.

The low price point means you can start trading with a small account and learn as you go. Since you’re only investing small amounts in each play, your returns may be small … but so are your losses. It’s one way to scale up slowly, over time.

Is It Worth It to Learn to Trade Penny Stocks in 2021?

Listen, I’m biased.

Penny stocks have made me millions.* 

Are they worth it? Can they help you grow your account? Of course, I think so. 

But these are possibilities, not promises. You need to know these things:

  • Penny stocks are NOT for every trader.
  • Traders need a solid work ethic.
  • You’ll have to learn to think for yourself.
  • Always be willing to do research.
  • Discipline is required to trade penny stocks.
  • Get ready to learn a LOT for your entire career.
  • You must build trading plans and stick to them.

If you can’t do ALL of these things, then penny stocks probably aren’t worth it for you.

But if you’re willing to educate yourself and become a self-sufficient trader, then my vote is yes: I think penny stocks are worth it.

Penny Stocks: Know the Risks of Trading or Investing in Them

Are there risks associated with penny stocks? Oh heck yes. To name a few:

  • They’re generally not as regulated as large-cap stocks.
  • They’re volatile.
  • Most of these companies will fail.

How to Minimize Risk When Trading Penny Stocks

You know what? I don’t like risk.

You don’t need to be an adrenaline junkie to trade penny stocks. In fact, you should hate risk so much that you’re willing to do anything and everything possible to avoid it!

It’s simple logic: If you take huge risks in the stock market, you stand to lose a huge amount of money. In some cases, you could lose even more than you invested in the first place.

Not my idea of a smart trading strategy.

If you want to stay in the game for the long run, focus on discipline, rules, and cutting losses. Practice smart risk management. For example, never invest more than 10% of your trading account on a single play. If you have a small trading account, maybe limit that to 1%.

You need to set your own boundaries based on your risk tolerance. What are you willing to bet on a single play — and what will happen if you’re wrong?

Write down your own rules and stick to them. Need help figuring out the rules? Start here.

Want to Trade Penny Stocks? The Right Mindset Is Crucial

You’ve gotta remember: penny stocks are NOT traditional stocks. Trading them requires a specific mindset.

I’ve already told you about adjusting your expectations about the companies behind the stocks … knowing and understanding that most of them will fail.

But another big adjustment is that you need to change your mindset about failure.

In the stock market, failure is unavoidable. If you’re the type of person who always needs to be right, this is not the game for you.

You can’t trade penny stocks without failing at some point. I’ve failed over and over again.

Don’t believe it? Check out my book, “An American Hedge Fund” for no cost. I recount some of my biggest mistakes and losses in full detail.

Instead of trying to avoid failure, resolve to learn from it. If you’re willing to work hard, accept failure, and learn from your mistakes, pennystocking could be right up your alley. You’ll learn that failures can eventually turn into success!

How to Trade Penny Stocks: Start With the Basics

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The first thing that you’ll need to trade penny stocks? An education.

Before you can hope to have any success as a trader, you need to learn what penny stocks are, how they work, and how to identify patterns.

A good starting point? This guide and my student Jamil’s book “The Complete Penny Stock Course.” It covers all the basics and more. From there, if you want to take it to the next level, consider joining my Trading Challenge.

Once you’re ready to actually get started trading, you’ll need a few key things…

Stockbroker

To trade stocks, you need to open a brokerage account. Your broker is the gateway between you and trades. It’s vital to choose a good one … don’t just go with the cheapest one. Do your research and check out this guide for more tips.

Stock Screener

You’ll need to narrow down the many choices of stocks to trade somehow. A stock screener can help you do this. You can use it to filter based on criteria that you set, for instance, percentage gainers with volume, etc. I use StocksToTrade, which can also help you with the next item on the list…

Charting Software

To really get a good overview of a stock’s health, you’ll need to perform detailed stock analysis.

There are two key types of stock analysis: fundamental analysis, where you look at the company itself, and technical analysis, where you look at the stock’s chart and try to find recognizable patterns.

StocksToTrade can help you do both: it’s got awesome charting software, but also links to relevant news, SEC filings, and even social media mentions related to stocks.

Both types of analysis are important, but with penny stocks, technical analysis is more important. I read chart patterns constantly. I want to see how a stock’s performed over weeks, months, or even years. What patterns can I detect in those charts? What might influence forecasted performance?

Trading Plan

You need a trading plan if you want to trade penny stocks. This is like a map where you plot out your entry and exit points. Ideally, you base these numbers on careful research and have the discipline to actually stick to your plan.

Must-Know Stock Terms

Whether you’re trading penny stocks or higher-priced stocks, you’ll need to be familiar with some basic trading terms. Here are a few key ones:

  • Buy: To buy shares of stock with the purpose of profiting from a rise in stock price
  • Sell: To sell shares of stock to make a profit or prevent further losses
  • Short sell: Borrowing stock you don’t own for the purpose of profiting off a stock that dips in price
  • Buy to cover: Buying back the shares of stock you sold short to profit
  • Bid: The highest price someone else is willing to pay for a stock
  • Ask: The asking price for a share of stock
  • Spread: The difference between the bid and ask prices
  • Uptick: A situation where a subsequent trade is at a higher price than the previous one
  • Downtick: The opposite of an uptick

Want more? Check out these 37 Stock Market Terms Every Trader Should Know.

Where Can Traders Buy and Sell Penny Stocks?

Some penny stocks can be found on major exchanges, but you can also trade on over-the-counter (OTC) exchanges. What are they?

Certain stocks don’t meet the requirements of the bigger exchanges for various reasons, such as size, profits, etc.

Companies like these trade on the OTC Markets. OTC stocks tend to be lower in price but higher in risk. They’re generally up-and-coming companies, and OTC listing requirements aren’t as strict as the NYSE or Nasdaq.

What Are the Best Brokers for Trading Penny Stocks?

I’m not a huge fan of any specific brokers. However, brokers are a necessary evil if you want to trade.

So I go with the two that I think suck the least: E-Trade and Interactive Brokers. In my experience, E-Trade is best for U.S. traders, and Interactive Brokers is mainly for international traders.

I’m not paid to use them — I’m just being transparent.

Mostly, you want a reliable broker that will be able to execute your orders, and that has the stocks and services you’re looking for. I know a lot of people use TD Ameritrade, Schwab, or Robinhood.

Personally, I don’t like Robinhood. Even though they have no minimums, you won’t find a lot of the penny stocks I trade on that platform. A lot of the best stocks are under $2 a share. In my experience, Robinhood isn’t good if you’re specifically looking for low-priced stocks.

If you can have two brokers, it can prove advantageous — especially for day traders who are concerned with the pattern day trader (PDT) rule.

For more information on brokers, check out this post.

How to Find Top Penny Stocks to Trade

Wanna find great stocks to trade? Here’s how to get started.

Use a Penny Stock Scanner Every Day to Find Opportunities

There are thousands of stocks to choose from. You can’t trade them all, and you shouldn’t just trade them randomly.

How can you narrow down the choices? With a stock screener. A stock screener lets you filter based on the criteria that you set. That’s how you can find the best contenders for trades that fit setups that work for you.

I helped create what I consider one of the best screeners out there: StocksToTrade. Designed by traders for traders, this is a one-stop-shop screener that has amazing charting software and research tools, too.

And for traders who are still getting up to speed — it’s got a great paper trading (virtual trading) platform, too.

The StocksToTrade team works hard to add more useful tools to the platform all the time — like a social media search tool and the Breading News chat feature. Check out how much I love Breaking News chat and why…

Discover How to Develop Your Unique Trading Strategy for Penny Stocks

Why not just follow what other traders are doing or trade based on my alerts? Because it’s impossible to replicate what another trader does.

All traders have their own unique style … and strengths and weaknesses. So rather than trying to follow stock alerts, work on increasing your knowledge and developing your own trading style and strategy.

There are a lot of factors that play into your trading success or lack thereof. But I can tell you that none of the top traders I know follow another trader’s alerts.

Even if they’ve based them on my teachings, they still took the time to adapt and develop their own strategies. They’re all self-sufficient. I provided the training wheels, but they’re off now.

My Top Tips for Trading Penny Stocks

Want some real insider tips about how to get ahead as a penny stock trader? Here goes …

  • Educate yourself. Education is the key to everything, especially in the stock market. Get smart, and you’ll trade smarter.
  • Be adaptable. Patterns repeat, but it’s not an exact science. The same setup that’s worked 99 times in a row might not work tomorrow, even if you don’t change a thing. Unless you want to become extinct as a trader, be nimble and adaptable.
  • Maintain a strong penny stocks watchlist. To stay on top of the best opportunities, you have to create and maintain a strong watchlist. This is a list of stocks that you’re interested in. Monitor them regularly and weed out the weaklings as needed.
  • Keep a trading journal. It’s one of the most important tools for any trader. In it, you’ll record every trade you make as well as your observations and results. It will help you avoid making the same mistake twice.
  • Learn from your mistakes. Have you ever lost $500,000 on a single play? I have.
    My mistakes are numerous, but I’m still successful. That’s because I learn from my mistakes and cut losses quickly!

Start Learning How to Trade Penny Stocks — Apply for My Trading Challenge

My Trading Challenge is based on my 20+ years of experience as a trader. The goal? Help traders help themselves … I want you to trade smart, stay safe, and be self-sufficient.

During my time in the market, I’ve learned a lot — and I share it all with my students.

I don’t accept everyone. I might be the hardest-working trading teacher out there, and I want people to appreciate my lessons.

It’s up to you to do the heavy lifting. You’ve got to take my teachings as a guide … I want you to use them to develop your own strategy. Do NOT expect to just get hot stock picks.

The Challenge has everything you need … interactive webinars with me and my top students … more than 7,00 video lessons … access to my incredible chat room, where students and I alert and share…

Ask yourself this: What’s the best that could happen if you dedicated yourself to learning how to trade penny stocks?

Learn the Key Indicators for Trading Penny Stocks

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I call myself a glorified history teacher because I constantly look to the past. It’s how I try to figure out how stocks might move in the future.

It’s never exact, but history usually repeats itself pretty closely.

So you need to learn to read chart patterns … but it’s even more important that you understand them. This really only happens with time and practice, which is why it’s SO important to study.

To back up what you’re seeing on the chart, you have to consider key indicators to determine how a stock might perform in the future.

‘Indicator’ can be a pretty broad term. It refers to any sort of flag that can work for or against you when deciding to make a trade.

I don’t really look at too much fundamental information for penny stocks, since I know most companies will fail. However, there are things you can look at that can help you evaluate what kind of risk you’re taking on…

Check for These Positive Indicators Before You Trade

Here are some signs that a stock could continue to go up:

  • Positive earnings and new contracts
  • Positive financing
  • New partnerships
  • Increases in trading volume
  • Positive industry news

Negative Stock Indicators

If you see these negative signs, it could be an indication that you should stay away from a trade … or consider going short.

  • Financing secured through desperation
  • Rumors of negativity from within the company
  • Poor industry news
  • Reduced trading volume

The Key to Trading Penny Stocks: Chart Patterns

Learning how to read chart patterns can make you a better trader. Moreover, you’ll begin to understand how stocks behave in specific market conditions.

If it seems hard at first, don’t worry — it takes time. You can learn to read chart patterns but still not really understand them. Think of each stock as a personality. It has its own way of moving depending on the company behind it and external factors.

Regardless of the type of chart you prefer, I recommend looking at several time frames. That can give you a better overall view of a stock’s momentum and how it’s performed in the past.

Chart Types

The four most common types of charts are:

  • Bar
  • Candlestick
  • Line
  • Area

Personally, I favor the candlestick. It’s easy to read movement in a candlestick chart based on whether the “wicks” are black, white, or red.

Bar and line charts are simple and don’t tell you as much. Honestly, I find it laughable that people try to rely on oversimplified charts to make trading decisions … but that’s just me.

As for area charts  …  I don’t know anyone who prefers area charts. They’re messy and difficult to understand at a glance.

Stock Chart Patterns

Chart patterns describe how a stock price moves over time — specifically in up and down movements. Although history doesn’t always predict the future, you can identify patterns that allow you to make educated guesses about a stock’s future performance.

Clean Stock Chart

This is my favorite type of chart. The stock’s price moves in one direction — up or down — with regular but brief changes in direction that quickly reverse.

You need to pay attention to clean charts. They’re highly predictive and can allow you to take advantage of quick profits on a long position or a short-sell.

However, you don’t want a chart that looks too clean. This type of chart has an upward or downward trend with almost no variation.

An extremely clean chart — especially one that remains clean for six to 12 months — often precipitates a steep increase followed by a steep decrease in price. If you’re not fast enough, you could lose significant cash.

Clean Bullish

You might have heard the terms bull and bear market. A bull market trends upward, while a bear market trends down. The same applies to chart patterns.

A clean bullish chart shows a steady upward trend. The stock price might fall on occasion, but it jumps right back up — often higher than it was before its brief decline. This is a good time to make your play because you’re likely to see the trend continue.

Clean Bearish

A clean bearish chart is the exact opposite of a clean bullish chart. There’s a definitive decline in stock price over time. It might spike every once in a while, but the downhill pattern is evident at a first glance.

It often happens after a steep increase in price. A company might announce new funding, for instance, that excites investors. The stock price shoots up, but it can’t sustain the hype, so it begins to fall back.

Clean Breakout and Clean Breakdown

Clean breakouts and clean breakdowns show that a stock has either broken through resistance or fallen below support.

The chart is clean because the pattern either repeats itself or shows significant pattern repeats prior to the breakout or breakdown.

Clean Cup and Handle

You can identify a cup and handle chart by its shape. You’ll see a downward trend followed by an upward trend. This part of the pattern looks like a cup. In a clean cup and handle, the downward and upward trends are smooth.

After the cup there’s a pullback — that’s the handle. If the cup and handle plays out like the classic pattern, it then continues upward. After the pullback, there’s a breakout over the level formed by the cup. It’s difficult to play this type of chart, but I’ve done it.

Messy Stock

I encourage you to look at messy stocks. Their charts are all over the place with no discernible pattern. The stock price might jump for no reason at all, fall a little bit, rise a little bit, fall again, and so on. But those peaks and valleys don’t repeat reliably.

While I think you can learn from these charts, don’t trade on them. There’s no way to predict what the stock will do next because you don’t have a pattern from which to learn.

Messy Breakdown

A messy breakdown starts with an upward trend. At first, the chart will look pretty clean (and appealing). Then, seemingly out of the blue, it’ll drop.

The pattern becomes extremely messy from there, with dips and increases that have no obvious reason behind them.

My Top Chart Patterns for Trading Penny Stocks

Now, we’re getting to the good stuff. Nobody else (except my Trading Challenge students) uses these patterns, because they’re mine.

I created them after watching stock charts for years and better understanding the patterns that play out.

The Supernova Penny Stock Chart Pattern

The Supernova Penny Stock Chart Pattern
DGLY supernova chart: 3-month, 1-day candle — courtesy of StocksToTrade.com

We’ll start with my favorite. The supernova looks like a stock chart exploded. It might have experienced modest peaks and valleys over several months, then it skyrockets for a short period of time.

I love supernovas. If you learn to ride the momentum, the potential gains can be meaty. I’ve seen penny stocks shoot up to 10 times or more in price. Learn more about this pattern in my Supernova webinar replay.

The Stair Stepper

The Stair Stepper
MPNGF stair stepper chart: 6-week, 1-hour candle — courtesy of StocksToTrade.com

This stock pattern looks just like a staircase viewed from the side. It goes up, flatlines, then goes up again. There might be a few dips along the way, but the stair-stepper pattern repeats.

The Snore

The Snore
HUYA chart: 1-year, 1-day candle, the snore — courtesy of StocksToTrade.com

Ignore this stock pattern at all costs. It’s incredibly boring because it lacks liquidity and volatility.

The Crow

The Crow
BTU chart: 1-year, 1-day candle, The crow — courtesy of StocksToTrade.com

I named this pattern the crow because it’s like watching a bird pick off your investment one chunk at a time until there’s nothing left. If you start to see a crow pattern, get out immediately to avoid potential losses.

Here are 13 penny stock chart patterns I think you should know.

How to Use Financial Ratios for Trading Penny Stocks

Financial ratios include things like price to earnings (P/E), earnings per share (EPS), and return on equity (ROE). Yes, it’s important to know about these things — but they’re not my primary focus when trading penny stocks.

Penny Stocks: Frequently Asked Questions

What Are Penny Stocks?

Penny stocks are stocks that trade for $5 per share or less.

Can You Make Money in Penny Stocks?

There are never any guarantees. Trading these stocks takes hard work. It’s possible — if you put in the time and effort to a) learn the strategies, b) use proper risk management, and c) gain experience over time.

Can You Get Rich From Penny Stock Trading?

I’ve made millions trading penny stocks and several traders have become millionaires through my Trading Challenge.* But our results aren’t typical and nothing’s guaranteed. It won’t happen overnight. These top traders and I put in years of hard work and thousands of hours studying the markets.

Is It Difficult to Sell Penny Stocks?

Selling a penny stock position can be difficult if you’re stuck in an illiquid stock. That’s what I never recommend students trade stocks with low volume.

What Are the Best Penny Stocks Apps?

That depends on your needs. I recommend focusing on information and education. Profit.ly is a solid example. You can also use StocksToTrade every day to help you find the hottest opportunities for your strategy.

How Much Money Do You Need to Trade Penny Stocks?

Depending on the broker you choose, you might be able to start an account with as little as a few bucks. Every trader is different. I personally started with a little over $12,000. Tim Grittani started with $1,500. Never trade with money you can’t afford to lose and focus on your education and the process.

What Are the Most Common Investment Types?

Stocks, commodities, derivatives, and real estate.

Is Robinhood Good for Penny Stock Trading?

I personally wouldn’t use Robinhood for trading penny stocks. It has restrictions on certain stocks, like many OTCs. But only you can decide the best broker for your needs. Do thorough research to find one that best suits your market approach.

Bottom Line: Start Your Penny Stocks Journey in 2021

You made it this far — congratulations! That tells me you’re not one of the fools looking to get into penny stocks to get rich quick. Or at least you understand that there’s more to trading than just buying, selling, and becoming a millionaire in a month.

Penny stocks aren’t for everyone. They’re volatile, the companies can be sketchy, and they do present a significant level of risk for you as a trader.

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If you’re willing to take the time to educate yourself and scale up slowly, you’ll be taking the right steps to build a strong foundation and working toward trading smarter.

Leave a comment and tell me if you’re ready to commit to your future. How willing are you to put in the work and become a smart penny stock trader?

Disclaimer

*Please note that any reported trading results are not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade. Individual results will vary. Trading is inherently risky. Before making any trades, remember to do your due diligence and never risk more than you can afford to lose.

This level of successful trading is not typical and does not reflect the experience of the majority of individuals using the services and products offered on this website. From January 1, 2020, to December 31, 2020, typical users of the products and services offered by this website reported earning, on average, an estimated $49.91 in profit. This figure is taken from tracking user accounts on Profit.ly, a trading community platform. Timothy Sykes has a minority shareholder interest in the platform. The typical success rate of users was based on the following methodology:

  • From January 1, 2020, to December 31, 2020, 849,078 trades were uploaded to Profit.ly. 633,891 trades were “verified” (corroborated with trade account data).
  • Instructor trades are ignored.
  • Average P&L / trades is obtained by calculating total P&L and dividing by the total number of trades
  • Average trades per account is obtained by counting the total number of trades and dividing by the number of accounts (mean function)

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