6 Effective Penny Stocks Strategies for Day Traders

The popularity of penny stocks has risen rapidly during the last ten years (even more from 2020). Thousands of traders have generated a substantial profit much faster than would have been possible by trading regular stocks.

Day trading the best penny stocks allows investors to double a relatively small investment in a short period of time. In addition, speculators can trade sizable volumes of stocks without investing a large sum of money.

» Related: How to Become a Successful Trader Starting Small

The question then arises: what are the most effective strategies for trading these companies?

Actionable penny stocks strategies for day trading

1. Monitoring The Fluctuations

Due to the sizable volume of shares that a trader can purchase, an investor can make large profits by taking advantage of momentary changes in the value of the stock.

Moreover, numerous studies have shown that trading by using short-term strategies is much less risky than utilizing long-term trends that could shift at any time.

How to use multi time analysis

2. Avoiding The Hype

As a result of the popularity of penny stocks, many companies have begun to artificially increase a stock's value by encouraging hundreds of inexperienced investors to purchase large quantities of their stock.

Once the price per share has risen substantially, these unscrupulous businesses sell their own shares for a price that is much higher than its actual worth. Experts advise traders to thoroughly research any penny-stock business prior to investing.

» Related: How to Analyze Stocks for Day Trading

Investors can analyze the historical fluctuations of the stock's value and utilize economic news related to the company and its industry to gauge whether it is a good investment.

3. Using Effective Strategies

To minimize risk and increase profits, it is advisable to consistently trade one company's stock and spend considerable time researching that business. A trader can quickly learn to predict most of the changes in the stock's value by using this strategy.

But use effective strategies when picking top penny stocks!

Many enterprises that are connected to penny stocks are very small-scale operations that generate only a low number of sales every month. Be aware that these companies are much more likely to collapse than small enterprises that consistently produce substantial profits.

» Related: Timeless Day Trading Strategies you should try

It is also best to choose a company that has customers in numerous geographical regions across the country, or select a business that is developing new products and services that are in high demand.

4. Analyzing Volume

When choosing penny stocks, select an enterprise that provides a high volume of shares. Day trading the top penny stocks allows an investor to purchase thousands of shares for a relatively low price.

These shares can be bought and sold frequently during a relatively short period of time to maximize profits. It is important to determine whether a large number of other investors are interested in purchasing shares of the same company.

Analyzing the volume also helps you pick the best penny stocks. If the demand for the stock is high, shares can be liquidated as soon as a substantial profit has been generated. This strategy mitigates the negative effect that may be caused by a drop in the stock's value.

5. The Benefits Of Volatility

When trading well-known stocks, many investors are forced to hold thousands of shares for several years before they can sell them to earn a profit. During this time, the company can sell its assets, go out of business, or be purchased by a large corporation.

In contrast, top penny stocks are generally much more volatile than more valuable stocks, and traders should purchase a penny stock with a price that frequently rises and falls by a large margin during each day.

Although this characteristic can increase the level of risk, volatility will ensure that an investor will not have to hold a stock for a long period of time. A recent study has shown that buying large quantities of this type of stock can maximize short-term profits.

» Related: How to Protect Yourself from Stock Volatility

6. Acquiring Shares At The Right Moment

When a penny stock's value drops significantly, a high number of shareholders will usually want to liquidate their shares; at that point, a large quantity of the stock can be purchased for a low price.

Once acquired, the fluctuations of the stock's value should be monitored until its price reaches its average daily peak; at that moment, the shares should be sold.

» Related: Buying & Selling Points: When to Enter and Exit a Trade!

External useful resources for penny stocks strategies

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