- 3.1 Use a stock scanner
- 3.2 Exploit chart patterns
- 3.3 Have a good set of indicators
- 3.4 Do your research
- 3.5 Watch for breakouts and rallies
- 3.6 Keep track of basic price action
- 3.7 Fundamental Analysis
- 3.8 Technical Analysis
Penny stocks are great for the average person to get into trading stocks. With its high volatility and ease of entry, more and more people are looking to invest in penny stocks to supplement their income or to become full-time traders.
Unlike traditional stocks, a penny stock trader can make a considerable profit with only a tiny investment. All they need to do is find stocks that will explode, invest and watch the money roll in.
Read on to find out how to find penny stocks before they explode.
What is a penny stock?
A penny stock is a stock that trades below $5 per share, leading to a higher level of volatility but also offers more significant profit potential. These are usually small businesses with one or two products available or are still in the initial stages.
Although some penny stocks are traded on larger exchanges such as Nasdaq or the NYSE, most are sold in over-the-counter (OTC) markets where there is no oversight.
This also opens the door for fraudulent behaviour to take place. Hence you must be cautious before investing in penny stocks.
Why invest in penny stocks?
Since most penny stocks are undervalued and fly under the radar of the big players, it can be a lucrative option for traders to find stock before breakout and make short-term trades for a significant profit with only minimal capital at stake.
The following factors are why there has been a 2000% increase in penny stock investments:
Lack of competition
Unlike large-cap stocks where you are competing against professionals like hedge funds, banks and other institutions with billion-dollar war chests, you are primarily up against other retail investors. With a solid strategy and knowledge, you can be ahead of the competition.
Since penny stocks are much cheaper than large-cap stocks, it is effortless for players to enter and exit the market quickly. This leads to high volatility, where even a single news story can lead to significant gains or falls.
If you are smart about it and see signs, the stock is about to explode, you can always ride the movement and exit timely to make a tidy profit.
High chance of payoff
Since penny stocks can regularly hit 200%-300% increases up to a few thousand percent, there is a chance that your investment can hit big and pay enormous dividends. However, it would help if you always were wary, as penny stocks nearly always fall in the long run.
How to find penny stocks before they explode?
It’s the dream of many a trader to hitch a ride with a high-performing stock and make it big, and the best way to do so is to invest right before the stock goes on an upward trajectory.
Here are a few secrets to penny stocks trading we are sharing with you so you can learn to be a successful penny stock trader.
Use a stock scanner
Setting up a stock scanner and narrowing your search to high potential stocks can help you find those perfect stocks under $1 that will explode and get you that big payout you were after.
Find stocks suited to your trading strategy and loss tolerance, and you can have a steady flow of profits coming your way.
Exploit chart patterns
You can use chart patterns to help you develop a sound trade strategy and prepare you to spot signs a stock is about to explode. Make a manageable list of stocks and get down to business.
Chart patterns will show you price, volume and patterns that might provide you crucial insights about a stock’s state. As you get better at reading them, you can see how traders respond to enthusiasm, greed and critical levels.
Have a good set of indicators
Successful traders have a set of indicators to find the best stocks. You should examine as many as possible and find the right one for your strategy. It’s best to utilize technical indicators to make sense of charts and determine if a trade is worthwhile.
Do your research
Traders need to do their research on stock before they make purchasing decisions. Most penny traders fail because they do not do their due diligence or are not up to date about market trends. It’s always worthwhile to find out as much as you can about the stock and be on the lookout for news.
Watch for breakouts and rallies
You should always find stock before breakout in order to maximize profits. You should follow stocks that are still up on the day and have morning highs. However, you must be wary about the possibility of a short squeeze.
Keep track of basic price action
Price movements reveal the truth about a stock. A stock chart will show you trends before any news outlets so you can find stocks that will explode.
When you get better at reading charts and price fluctuations, you will notice patterns. When you feel more confident about your abilities, it’s time to begin betting on your forecasts.
The strategies mentioned above are a more active approach in finding stocks that are performing well.
However, this is for a more short-term approach. For a longer-term view, it is best to use the following techniques:
This technique is one of the most significant ways to determine a company’s financial data, market scenario, political and economic trends, etcetera.
The earnings and growth numbers of a company can provide you with a lot of information about how it’s performing. Figuring out the fundamentals of a company can help you understand its trajectory.
A company’s P/E index is also an essential thing to consider. When cross-referenced with other stocks in the same sector, you can know if the stock is valued correctly by the market or is undervalued.
You can use technical analysis to get a view of a stock’s performance in terms of price and volume over a time period to determine how well it fairs against its competitors.
However, you must be wary about external factors, including the state of the economy, social trends, etcetera, as this is what drives investors and thus determines rises or falls in price.
Risks of Trading penny stocks
With volatility comes the potential for great returns, but there is a greater risk. You must always remember that the penny stock market is not for long-term investing, as most stocks eventually fall in value.
Since most of these companies are relatively new and some are of the sketchy variety, it is not uncommon for them to suddenly disappear. But before they vanish, they may make significant moves, and the savvy trader can stand to benefit from them.
However, there have been many scams and other illegal activities taking place in the penny stock market that the unaware among us may become a victim of.
How to avoid scams
Any sort of recommendation or advice regarding penny stocks should be taken with a grain of salt. If possible, find the source of the recommendation as many times it could be insiders or paid promoters who stand to benefit from your investment.
It would be best to do as much research on a company as possible. Reading financial statements or the prospectus can give you a better idea of the company’s legitimacy.
It is often the case that the company will make claims of having a new technology or a new product that will be revolutionary as soon as the released. These are usually to bait you into buying and should be verified from legitimate sources before making any decisions.
Many times, penny stocks cannot meet the listing requirements of major exchanges and end up in the over-the-counter market, where they are vulnerable to price manipulation and other risks. It is always wise to be skeptical because if it sounds too good to be true, it just might be.
Trading in the stock market, be it in Large-cap stocks or penny stocks, there are always risks involved. Even the most secure stocks have seen volatility, resulting in losses for many a trader. However, Penny stocks do make it easier for the retail investor to make good profits in a not-so-competitive market while also providing crucial early funds for young companies.
On the flip side, though, the volatility and uncertainty in penny stock markets can become dangerous for traders who don’t know what they are getting into.
Hopefully, our not-so-secret penny stock secrets and strategies will help you answer the question of how to find penny stocks before they explode?
Here are a few answers to the most frequently asked questions.
Where Can I Find Explosive Penny Stocks?
Although some penny stocks can be found in the major exchanges, most are in over-the-counter markets. Use stock scanner tools on your PC and mobile to be constantly in the know and buy when you see the right trends.
How Do I Find Finviz Before Penny Stocks Explode?
There are multiple tutorials online that will show you how to use Finviz and a stock screener to find out which stock is hot. The better you get, the faster you'll recognize the trends and the more profit you will make.
How Do You Know If Penny Stocks will Go Up?
Spikes in trading volume, social media buzz, news reports, etcetera can all influence traders' buying decisions, thus leading to an increase in penny stock prices.
What is the Most Successful Penny Stock Ever?
Apple used to trade for 80 cents per share in the 2000s; nowadays, it trades for over $370, which is a 46,750% making it the most successful penny stock of all time.
How Do I Find New Penny Stocks?
You can use stock screeners to search through the entire stock market. You can use the filters to find penny stocks suiting your trading strategies.