The appeal of penny stocks trading is obvious. You can get started with very limited capital and see huge percentage gains in your portfolio.

However, there are also risks to trading penny stocks, just like any highly volatile stocks. You need to take the time to learn how to trade penny stocks for beginners before executing your first trade. We’re here to help.

From understanding the pros and cons of this investing strategy for beginners to choosing the right platform, understanding stock picking strategies, figuring out when to buy the dip, and more – we’ll cover everything you need to know about how to make money with penny stocks.

The best investing tip for beginners, though, is to set yourself up for success with the best app for stock analysis. The VectorVest stock advisory helps you pinpoint lucrative opportunities at a glance without any guesswork or emotion.

See for yourself why it’s the best app for penny stocks with a free stock analysis today. Or, learn more about how to trade in penny stocks below.

What are Penny Stocks?

Contrary to popular belief, penny stocks don’t necessarily have to trade for pennies. Sure, there are plenty of penny stocks under 10 cents – but technically, any stock trading for less than $5/share falls under this umbrella.

These are typically traded on over-the-counter (OTC) markets, such as the OTC Bulletin Board (OTCBB) or Pink Sheets, but some penny stocks trade on major exchanges like the NASDAQ or NYSE as well.

Those trying to maximize their leverage are drawn toward penny stocks for their affordable entry points and the potential for massive returns. Beginner traders with low budgets can buy up large positions with ease.

This is in stark contrast to the best blue chip dividend stocks like Apple (AAPL) or Amazon (AMZN), which cost hundreds of dollars (if not thousands) per share.

Trading in fractional shares is certainly possible, but it’s much more daunting to someone whose entire portfolio is only $500 to $1,000. That being said, there are also downsides to penny stocks trading. So, is it worth taking the time to learn how to trade penny stocks or not?

Is Trading Penny Stocks Worth it?

No stock trading style is without its shortcomings. Even the safest dividend stocks have drawbacks. You need to be aware of the good, the bad, and the ugly before making your first penny stock trade.

Benefits of Trading Penny Stocks

We’ve already covered some of the benefits of trading penny stocks. They’re one of the most accessible entry points into investing. Here are all the benefits of penny stocks trading:

  • Low Barrier to Entry: With shares priced under $5, you can invest in hundreds or thousands of shares with minimal capital and experience incredible leverage.
  • High Percentage Gains: Small price movements can lead to substantial percentage returns. For example, a stock that moves from $0.50 to $1.00 represents a 100% gain.
  • Opportunities for Growth: Many penny stocks are tied to small or emerging companies. If these companies succeed, their stocks can experience exponential growth over time.
  • Wide Variety of Options: The OTC market houses a diverse range of companies across industries, so you can target sectors you believe have the most growth potential.

Risks of Trading Penny Stocks

Despite being known as some of the best starter stocks for beginner investors, penny stocks aren’t without their problems. Some of these include:

  • High Volatility: Penny stocks can experience dramatic price swings in short periods. While this volatility is what creates opportunities, it can also expose you to significant losses before you have a chance to sell your position.
  • Low Liquidity: Penny stocks tend to have limited trading volume, so it can be tough to buy or sell shares without impacting the price or encountering delays. This is where high volatility becomes a problem. If the stock price starts plummeting, you can get “stuck” in your position.
  • Lack of Transparency: Smaller companies often have limited financial reporting. It’s harder to evaluate their true value and potential. Reliable data on penny stocks can be harder to find as well, leaving you vulnerable to making decisions based on incomplete or inaccurate information
  • Fraud and Manipulation: Penny stocks are more susceptible to pump-and-dump schemes, where prices are artificially inflated by bad actors, only to crash once those pulling the strings decide to sell their shares.

Who Should Learn How to Trade Penny Stocks?

So, is it worth taking the time to learn how to trade penny stocks or not? Only you can decide for yourself after weighing both the pros and cons. These aren’t for everyone, but they do have their place in the investment realm.

You’ll need a high risk tolerance for trading penny stocks. Being able to stomach big losses is part of the game. You also need to have plenty of time to monitor the market closely and pay attention to volatility.

Speaking of time, the commitment to learning penny stock trading is high – as is the amount of research that goes into it. There are plenty of free stock analysis websites and online stock classes you can take to hit the ground running – including right here at VectorVest!

On that note, let’s get into how to buy and trade penny stocks for beginners.

How to Trade Penny Stocks for Beginners: Tips on Getting Started With Penny Stocks Trading

Trading penny stocks can be a lucrative, stress-free approach to investing when you set yourself up for success with the right method and tools. We’ll walk you through how to buy and trade penny stocks for beginners, from complete novice to executing your first profitable trade.

Take the Time to Learn How to Trade Penny Stocks

Just like learning how to make money trading options or how to find stocks to day trade, you need to commit to the learning curve and take your time to find the best way to learn how to trade penny stocks.

Maybe that’s a professional course, or perhaps it’s watching someone trade penny stocks in real-time like a mentor. It could involve reading blog posts like this one and then taking what you’ve learned and applying it with paper trading.

There’s no one-size-fits-all answer to learning penny stocks trading. But, paper trading does tend to be the best way to take information and put it into action in real-world situations.

This is essentially trading with fake money. You can make mistakes for free so that when it comes time to actually start trading penny stocks, you’ve learned from those missteps and they won’t affect your portfolio.

Our blog has more resources on learning fundamental analysis and learning technical analysis, including how to combine fundamental and technical analysis. These are great starting points whether you’re trading penny stocks or investing in blue chip stocks.

Determine Your Goals With Penny Stocks Trading

Maybe you’re interested in day trading penny stocks and want to find short term stocks to buy so you can generate income in the here and now.

Or, perhaps you’re trying to buy and hold these aggressive growth stocks with the hope that they’ll generate triple-digit returns over the next few months or years.

This is part of the appeal of learning how to trade penny stocks for beginners – there are plenty of different directions you can take this stock trading system. You can be as hands-on or hands-off as you want.

The most popular approach tends to be looking for breakouts and capitalizing on short-term price swings, though, so you’ll likely rely on the best stock indicators to uncover these opportunities.

This style of penny stocks trading is much more involved, but it’s worth it for the potential returns. The strategy can be dramatically simplified with the best stock picker app, too. More on that in a moment – first, you need to choose the right platform for trading penny stocks.

Choose the Right Trading Platform

Whether you want to learn how to trade penny stocks on Fidelity or how to trade penny stocks on Robinhood, figuring out where to trade penny stocks is not something you should take lightly. After all, not all platforms offer access to OTC markets, which is where these stocks are traded.

Take your time to weigh your options and find a platform that not only lets you trade penny stocks but keeps fees as low as possible. This is especially important for penny stocks trading since you’ll execute more transactions than the average investor, and fees could add up.

Don’t make the decision based on cost alone, though. You should also take the interface into consideration and make sure it’s clear and intuitive. There’s enough of a learning curve that goes into trading penny stocks without the platform overcomplicating things for you.

Better yet, see if the platform supports you in learning how to trade penny stocks with advanced charting tools, stock screeners, and news integration. This will make your life easier and help you potentially execute more profitable trades.

Build a Penny Stock Watchlist

How do you actually find penny stocks to trade? It’s not all that different from how to find undervalued stocks or the highest paying dividend stocks. You need to set your parameters for what a “good” penny stock looks like to you and start building a watchlist.

You can filter stocks based on criteria like price range, trading volume, and sector. There are plenty of catalysts that will make a stock move one way or another, which you’ll want to watch out for as well. Think news, earnings reports, or sector trends.

Always keep a close eye on volume and liquidity when considering trading a penny stock. High trading volume indicates better liquidity, making it easier to enter and exit trades.

We’ll touch on this more in a moment, but part of what makes VectorVest the #1 investment apps for beginners is it features pre-curated stock screeners that bring the best opportunities to your fingertips at any given time. You can build your own watchlist, or you can rely on ours for a simpler, more foolproof approach.

Develop a Trading Plan

One of the biggest mistakes we see beginner penny stock traders make is straying from their trading plan and letting emotion get in the way. It’s imperative that you stay disciplined and consistent in your trading plan.

That means having pre-determined entry and exit points before actually executing a trade. You should know the price you’ll buy the stock at, where you’ll take profits, and where you’ll cut losses.

Ideally, you’d put stop-losses and take-profit orders in place to completely remove yourself from the process of actually closing out your position. This helps remove greed and emotion.

Start Small and Scale Gradually

Even if you feel confident in how to buy and trade penny stocks for beginners, there’s no need to rush in with large investments. Start with a low level of capital to test your strategy and build confidence.

Use these first few trades as opportunities to learn more and refine your approach. Then, you can start to gradually increase your position sizes as you develop a successful track record.

Monitor News and Market Trends

Because penny stocks are so sensitive to news and trends, you need to keep an eye on news like earnings reports, new product launches, sector developments, and even macroeconomic trends.

This will involve tracking stock market sentiment, another feature within VectorVest that shows you how the market feels on any given day. You should even consider setting up alerts for price changes or news events so you can act fast.

Using Trading Tools to Streamline Success

The best way to learn how to trade penny stocks is with the VectorVest stock analysis software guiding your every move. Why work harder when you could work smarter?

Our system tracks and ranks 18,000+ stocks every day and gives you a buy, sell, or hold recommendation for any given stock at any given time. The system has outperformed the S&P 500 index by 10x over the past 20 years and counting, so you can rest assured it works!

But the real benefit is in how it simplifies your approach to finding stocks and analyzing them. You’re given all the insights you need in 3 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.

This saves you a ton of time and stress associated with traditional technical analysis vs fundamental analysis. Plus, you never have to look far for your neck opportunity thanks to the pre-curated stock screeners we mentioned earlier.

Whether you want the best stock apps for iPhone or the best stock apps Android, look no further than VectorVest. Give yourself the edge you need in trading penny stocks today!

Final Words on the Best Way to Learn How to Trade Penny Stocks

That does it for our guide on how to trade in penny stocks for beginners. Penny stock trading can certainly be a lucrative investment strategy, but it requires dedication, discipline, and the right tools – like VectorVest.

Our blog has additional resources on how to build a stock portfolio, the best day of the week to buy stocks, falling stocks to buy, can you buy and sell a stock in the same day, best options trading alert service, best MACD settings, are financial advisors worth it, and many more.

But whether you’re interested in trading penny stocks or trying to find the best stocks for Roth IRA, don’t play the guessing game or work harder than necessary. Trust VectorVest to guide you towards simple, profitable trades on autopilot!