Whether you’re looking for a bit of extra income on the side or want to make a living investing full-time, day trading is one of the most popular approaches. It’s clear to see why, you can make solid returns each and every day, often in just a few hours of work.

But when you’re first getting started, capital might be hard to come by. You need to maximize leverage however you can, and that’s where the topic of day trading penny stocks comes in.

Wait, can you day trade penny stocks? Absolutely! We’ll show you how to day trade penny stocks in this guide, from tips on what to look for in the best penny stocks to day trade to ways you can find them on autopilot, like using a reliable stock picker.

VectorVest is a stock software that shows you what to buy, when to buy it, and when to sell it. It’s the #1 iPhone stock app and Android stock app alike. Get started today and see for yourself how it can elevate your penny stock day trading strategy!

Can You Day Trade Penny Stocks?

First things first, can you day trade penny stocks? Let’s take a step back and explain what exactly these are in the first place, as the misconception is that these stocks always trade at just a few cents and are associated with low-quality companies.

Sure, sometimes those stereotypes hold true – but that’s not always the case. The penny stock definition is any low-priced stock trading less than $5 per share. They tend to be associated with small-cap companies that are relatively new or financially unstable.

Most penny stocks are traded over-the-counter (OTC), though some trade on traditional exchanges like the NASDAQ or NYSE. Their appeal lies in the potential for rapid and significant price movements in a short period of time.

This is part of why day trading penny stocks is so interesting. Day traders look to buy and sell a security, most often stocks, within the same trading day.

The goal of this stock investing strategy is to capitalize on small price movements by entering and exiting positions quickly, often multiple times per day. That being said, can you day trade penny stocks? You sure can!

But, successfully day trading penny stocks requires a well-thought-out strategy. Part of the issue is that penny stocks tend to have fairly low liquidity and trading volume, which means you might get stuck in a position or have to buy/sell a stock at a less-than-optimal price.

So before we get into how to day trade penny stocks, let’s take a closer look at the pros and cons and figure out if it’s actually the right approach for you.

Pros and Cons of Day Trading Penny Stocks

All types of stocks have their pros and cons, from aggressive growth stocks to safe dividend stocks. Penny stocks are no exception. Here’s the good, the bad, and the ugly:

Benefits of Penny Stock Day Trading

  • Low Barrier to Entry: Penny stocks are cheap so you can enter the market with very little capital and gain leverage. You can buy hundreds or even thousands of shares with limited funds, increasing your potential upside if the stock makes even modest gains.
  • Potential for High Returns: The low price and high volatility of penny stocks means you can enjoy substantial percentage gains in a short period. A stock moving from $0.10 to $0.15 may seem like a small jump, but that’s a 50% increase in value! Day traders who time their trades correctly can potentially see large profits within hours.
  • Frequent Opportunities: These are high volatility stocks, which means there are numerous trading opportunities throughout the day. You won’t have trouble finding stocks with sudden price spikes or drops. There are always chances to capitalize.

Downside of Penny Stock Day Trading

  • High Volatility and Risk: The same volatility that provides opportunities for profit can also expose you to rapid losses. Penny stocks can swing wildly in both directions, often without clear news or reasons behind the moves. Losses can add up quickly.
  • Low Liquidity: Penny stocks have low trading volume compared to other stocks, meaning there are fewer buyers and sellers at any given time. This makes it tough to execute trades at your desired price, especially during sharp price surges in either direction. You may find it hard to sell large quantities without affecting the stock’s price.
  • Lack of Transparency: The companies behind these stocks often offer little financial transparency, so it’s not easy to research or understand their business models. This increases the risk of falling for pump-and-dump schemes, where stock prices are artificially inflated by bad actors looking to sell their shares at a profit.
  • Regulatory Concerns: The OTC markets these stocks trade on have less regulation than major exchanges. This can lead to increased fraud, scams, or misinformation, further complicating the day trading process.

Is This the Right Approach For You?

There is no right or wrong answer as to whether or not day trading penny stocks is right for you. Your specific goals and risk tolerance will have to come into play.

That being said, you can at least keep learning how to day trade penny stocks for a better understanding of what goes into executing this strategy. So, let’s talk about what to look for in the best penny stocks for day trading.

What to Look for in the Best Penny Stocks for Day Trading

We have a detailed guide on how to pick stocks for day trading, but the specifics of finding the best penny stocks for day trading are a bit more nuanced. Here are some things you need to watch for.

High Trading Volume

Ample liquidity is one of the most important factors for day trading penny stocks. You want to trade stocks that you can enter and exit easily. There needs to be plenty of buyers and sellers so you don’t get stuck in a position due to a lack of demand.

A stock with low volume may see large price gaps and slippage, so even if you can buy and sell it in a timely manner, you may not get the price you want. Our advice is to focus on stocks with at least 1 million shares traded per day.

This can be found in just about any trading platform under the volume filter. You can also set this as your criteria when screening for stocks.

Price Volatility

Of course, the stock needs to experience frequent ebbs and flows throughout the day so you can actually profit from it. There’s a fine line here, though. too much volatility can also increase risk, so you’ll want to balance the potential upside with the ability to manage risk.

A good rule of thumb is to find penny stocks that regularly move between  5% to 20% or more within a day. You’ll use the best stock indicators and conduct technical analysis to uncover these opportunities. That includes Bollinger Bands or Average True Range (ATR).

You won’t worry too much about doing fundamental analysis when day trading penny stocks, but you can watch for recent news or catalyst events as a trigger for volatility. Think earnings reports, industry news, regulatory approvals, etc.

Stock Float

This refers to how many shares are available to the public for trading. This has to do with liquidity and volume, but there’s more to it than that.

Stocks with a low float (typically fewer than 10 million shares) tend to be more volatile since it takes fewer trades to move the stock price one way or the other. While these stocks can generate rapid profits, they also come with higher risks.

More Tips on Finding Penny Day Trading Stocks

Whether you’re swing trading vs day trading penny stocks, you’ll need to have a method for consistently uncovering opportunities. We touched on technical analysis a bit already, but here’s a deeper look at the indicators you can rely on besides Bollinger Bands and ATR:

  • Moving Averages: Use short-term moving averages like the 5-day or 10-day to detect whether the stock is in an uptrend or downtrend. Crossovers of moving averages often signal potential entry or exit points.
  • RSI: This helps you understand whether a stock is overbought (above 70) or oversold (below 30). Overbought stocks may soon see a correction, while oversold stocks could be primed for a bounce.
  • MACD: Identify momentum shifts with this indicator. The MACD line crossing above the signal line is a bullish signal, whereas crossing below indicates bearish momentum.

There’s a lot that goes into understanding what drives stock prices, and we haven’t even touched on stock market sentiment. Fortunately, you don’t have to spend hours in front of your screen tracking indicators or staring at charts.

Instead, you can rely on the best stock analysis app to do all the heavy lifting for you. That’s where VectorVest’s stock advisory comes into play!

Streamline Your Analysis and Execution With VectorVest, the Best Platform to Day Trade Penny Stocks

VectorVest is an investment app for beginner and expert traders alike. It distills complex technical indicators and fundamental data into clear, actionable insights. The system empowers you to make calculated, emotionless investment decisions to win more trades with less work.

Rather than stressing over countless indicators and trying to uncover trends, you can rely on three simple ratings: relative value (RV), relative safety (RS), and relative timing (RT).

Each sits on a scale of 0.00-2.00 with 1.00 being the average for effortless interpretation. But it gets even easier. The system gives you a buy, sell, or hold recommendation based on the overall VST rating for any given stock at any given time.

In this sense, you can pull up a list of stocks and find your next trade at just a glance! You also have access to a wide range of pre-curated stock picks so your next opportunity is never too far away.

Whether you’re looking for the best penny stocks for day trading or the best stocks for Roth IRA, the best stocks for covered calls, or the best blue chip dividend stocks, you can count on VectorVest to streamline your analysis and execution.

So, try it out yourself with a free stock analysis today and give yourself the best odds of success while day trading penny stocks!

How to Day Trade Penny Stocks: Step-by-Step Guide to Day Trading Penny Stocks

Whether you’re interested in penny stocks under 10 cents or those in the $5 range, we’ll walk you through how to day trade penny stocks below for a quick overview of executing that first successful trade.

Choose the Right Trading Platform

You need to create an account with a platform that supports penny stock trading before you can do anything else. Look for a broker that offers low commissions and fast execution speeds, especially since penny stocks move so fast.

Platforms like Interactive Brokers, Fidelity, or E*TRADE are solid options, but any platform that gives you access to OTC markets, low fees, and real-time data is a great choice.

Pre-Market Preparation and Stock Scanning

Get used to waking up early as a day trader. The work begins before the market even opens, as you need to build up a watch list of potential trading opportunities.

Most successful day traders create a watchlist based on specific criteria, such as volume, price movements, and news catalysts. The specific metrics you prioritize are up to you. All that matters is you’re finding stocks that look poised to pop.

Narrow your list down to 3-5 stocks that meet your criteria. This keeps your focus sharp and prevents analysis paralysis. You don’t need to focus as much on quantity if you’re making quality trades with high returns.

Develop a Trading Plan

With a solid list of stocks to trade you need to identify your entry and exit points. This is your trading plan, and you’ll fall back on it to avoid getting in your own way and making emotional decisions.

Use support and resistance levels or chart patterns to guide your entry. Then, set a target price for when you’ll sell your stock. Similarly, you need to set a point at which you’ll cut losses if the trade doesn’t shape out how you’d envisioned.

Define how much you’re willing to lose on a single trade. For most investors, it’s no more than 5% or so. Set a stop-loss order at this price to protect your position against further downside. The order will execute automatically if the price falls below that point.

Monitor News and Catalysts

The majority of your trading day will more or less be a waiting game. You’ll watch for news or other catalysts that might affect your watchlist. This could be earnings reports, product launches, or regulatory approvals.

Execute Your Trades

Understanding when to buy stocks is important, as you want to give yourself enough cushion to make a profit – but you don’t want to buy in too early while the stock is still moving downward.  Market timing is crucial, and using the right order type is just as essential:

  • Market Orders: These allow you to buy or sell immediately at the current market price, but be cautious as it may result in price slippage.
  • Limit Orders: These let you buy or sell at a specific price or better. You get more control over the price your trade executes at, which is pertinent given the volatility of penny stocks.

Either way you should have plenty of alerts set up so that you don’t miss the best time to buy stocks.

Manage Your Positions

If you’ve followed our advice on how to day trade penny stocks thus far most of the work is done. At this point you have your take profit and stop loss orders in place and you just have to wait to see how the stock moves.

Hopefully, it falls right in line with your trading plan and you can make your exit in a matter of minutes or hours with a sizable profit. Just be prepared to adjust stop-losses or take profit orders as the stock’s price moves.

And, that’s it – you know how to day trade penny stocks now! As you can see it’s not all that complicated, especially when you have the right tools in your arsenal to do the heavy lifting for you.

So what are you waiting for? Start scanning for the best penny stocks for day trading today.

Final Thoughts on the Best Penny Stocks for Day Trading

That does it for our guide on day trading penny stocks. While this strategy certainly isn’t right for everyone, it does have its appeal. We hope you have a solid grasp on if it aligns with your risk tolerance and goals along with how to actually find the best penny stocks for day trading.

Learn more in our blog with additional resources on how to build a stock portfolio, how to find undervalued stocks, best time frame for swing trading, monthly dividend stocks to hold forever, swing trading strategies, free stock analysis websites, fundamental vs technical analysis, how to pick good stocks for short-term, and more.

Or, better yet, take a closer look at how VectorVest can support your penny stock day trading journey. Whether you need guidance on penny stocks or any of the other best short term stocks, our system sets you up for success and guides your decision-making.

Don’t leave your trades to chance or work harder than necessary. Leverage a tried-and-true stock forecasting software today and win more trades with less work!