How to Trade and Invest in Penny Stocks: 9 Pro Tips

Learn how to trade in the penny stock market and arm yourself with these essential tips to increase your chances of success.

If the world of penny stocks sounds enticing to you, don’t worry you are not alone. The attraction to the promises of big returns with minimal investment has the power to blur anyone’s vision with dollar signs. Understanding how to trade penny stocks is crucial in these markets. The act of investing in penny stocks happens less-so as these shares are held for a shorter period of time (where investing usually consist of long-term holds). If you have determined that this trading sea of risk and speculation is right for you, here are some penny stock trading tips to actually stay afloat in these waters.

9 Things To Know When Trading Penny Stocks

  1. Pick your own stocks

    When conducting your research on penny stocks, you will certainly come across quite a few “big winners” that are all but ready to explode higher. Disregard these tips as buying these stocks blindly leaves you more vulnerable to scams and misleading information. This also means ignoring the success stories you will certainly hear about. You are better off taking the time to research and find stocks yourself.

  2. Know your numbers

    When you find the company you want to buy, don’t dive in right away. Track the company for some time to get a better feel for how the price of the stock moves. Have an entry price in mind that you believe would be fair to get in at. Once you’re in, have an exit price as well. Know when you will sell your shares should they move lower, limiting your loss, as well as when you will sell higher and take a profit. You can even configure these transactions to automatically occur for added insurance.

  3. Don’t get greedy

    You can lose that 20%-30% return just as quickly as you made it. Stocks in the penny stock market can change directions rather quickly and those that are slow to react are often left selling their position to cut their losses. Take your profits when you can and move on.

  4. Don’t look back

    It’s easy to sell a stock and then watch as it climbs higher and higher in the following weeks and months. The agony of watching this and thinking of what could have been will only cause you to over think and make mistakes going forward. Once you have parted ways with a stock, move on to the next one and disconnect emotionally from the previous one. Only check-in on the price of the stock for your own educational purposes but never second-guess yourself. When in doubt, always refer to number 3.

  5. Second-guess what you hear

    From company management, from online sources, and even from your stockbroker, don’t be afraid to second-guess. In the dreary world of penny stocks, it is not uncommon for involved parties to publish misleading information. Your job as a shareholder or a potential shareholder is to take everything you hear with a grain of salt and confirm as much information as you can.

  6. Keep a long position

    I.E. don’t sell short. Penny stocks are extremely volatile and if you end up on the wrong end of a short position your losses can be pretty significant. When you purchase a stock, your losses are limited to your investment. When you take a short position on a stock, your losses can technically be infinite as the stock can keep rising. The large swings in penny stocks make short positions all the riskier.

  7. Follow the volume

    Stick to stocks that have a high number of shares trading hands every day. Too little volume and you can have a difficult time finding a buyer to liquidate your position. This is an unfavorable position to be in when a stock is on the decline. The size of your position will also affect how easy it is to get out. Keep your position relatively small to the average volume that is trading every day.

  8. Study the underlying company

    Too often penny stock traders are making their picks based on technical signals and forget about the underlying company. Look for solid earnings patterns and companies making new highs that are paired with strong fundamentals. There are plenty of good companies listed as penny stocks that make great long-term investments. Companies like True Religion, Pier 1 Imports and Monster Beverage were all once penny stocks looking to find their way.

  9. Don’t be an emotional investor

    Never fall in love with a stock. This may blur your vision of the true potential of the stock leaving you susceptible to losses. Even if you are absolutely convinced that this stock is a winner and have recommended it to your friends and family, a good investor is able to separate the emotions from their investment.


The Best Stock Newsletters as of January 3, 2025

Ranking of Top Stock Newsletters Based on Last 3 Years of Stock Picks

We are paid subscribers to dozens of stock and option newsletters. We actively track every recommendation from all of these services, calculate performance, and share our results of the top performing stock newsletters whose subscriptions fees are under $500. The main metric to look for is "Excess Return" which is their return above that of the S&P500. So, based on January 3, 2025 prices:

RankStock NewsletterStock
Picks
Average
Return
S&P500
Return
Excess
Return
Percent
Profitable
Max %
Return
Min %
Return
1.Seeking Alpha logo
Alpha Picks
6471.7%23.9%47.8%77%969%-47%
Summary: 2 picks/month based on Seeking Alpha's Quant Rating; Retail Price is $499/yr. See details in our Alpha Picks Review.FEBRUARY PROMOTION:
Save $50
2.Zacks logo tiny
Value Investor
3926.8%13.9%12.8%51%494%-41%
Summary: 10-25 stock picks per year based on Zacks' Quant Rating; Retail Price is $495/yr. Read our Zacks Review.FEBRUARY PROMOTION:$1, then $495/yr
3.Zacks logo tiny
Top 10
3321.2%8.4%12.8%52%170%-56%
Summary: 10 stock picks released on January 1st of each year based on Zacks' Quant Rating & maybe 1 or 2 changes a year; Retail Price is $495/yr. Read our Zacks Review.FEBRUARY PROMOTION:$1, then $495/yr
4.Moby logo tiny
Moby.co
31142.1%31.4%10.7%74%1030%-95%
Summary: 60-150 stock picks per year, segmented by industry; Retail Price is $199/yr. Read our Moby Review.FEBRUARY PROMOTION:Get 1 pick free!
5.Motley Fool logo
Stock Advisor Canada
3631.8%25.3%6.5%81%216%-68%
Summary: 1 pick/month from the Toronto stock exchange; Retail Price is CD$199/yr. Read our Motley Fool Canada Stock Advisor Review.FEBRUARY Promotion: Get $100 Coupon
6.Motley Fool logo
Hidden Gems
7638.1%32.9%5.2%71%258%-100%
Summary: Sold as part of Epic service that includes Hidden Gems, Stock Advisor, Rule Breakers; 5 picks/month; Retail Price is $499/yr.
Read our Epic Review.
FEBRUARY Promotion: Get $200 Coupon
7.TheStreet logo
Action Alerts Plus
37820.8%16.7%4.1%56%220%-77%
Summary: 2100-150 trades per year, lots of buying and selling and short term trades. Read our Jim Cramer Review.Current Promotion: None
8.TipRanks logo
TipRanks SmartInvestor
12410.3%7.2%3.1%60%269%-48%
Summary: About 1 pick/week focusing on short term trades; Lifetime average return of 355% vs S&P500's 149% since 2015. Retail Price is $379/yr. Read our TipRanks Review.Current Promotion: Save $180
9.Motley Fool logo
Rule Breakers
6636.2%35.4%0.8%65%344%-81%
Summary: 2 picks/month focusing on disruptive technology and business models; Lifetime average return of 355% vs S&P500's 149% since 2005; Now part of Motley Fool Epic. Read our Motley Fool Epic Review.Current Promotion: Save $200
10.Motley Fool logo
Stock Advisor Canada
7125.2%24.8%0.5%73%216%-93%
Summary: 2 pick/month from the TSX and U.S. markets; Retail Price is CD$199/yr. Read our Motley Fool Canada Stock Advisor Review.FEBRUARY Promotion: Get $100 Coupon
Top Ranking Stock Newsletters based on their 2024, 2023, 2022 stock picks' performance as compared to S&P500. S&P500's return is based on average return of S&P500 from date each stock pick is released. NOTE: To get these results you must buy equal dollar amounts of each pick on the date the stock pick is released. Investor Business Daily Top 50 based on performance of FFTY ETF. Performance as of January 3, 2025.

Build your wealth faster with best stock picks: See our current ranking of the BEST STOCK NEWSLETTERS.