Penny Stocks Trading - Step By Step Guide for Beginners 2025

Penny stocks for beginners 2025 is a step by step trading guide on how to trade penny stocks online. I have been trading penny stocks for a few years now with decent profits and I will show you how to buy penny stocks with the strategies that I use. Whether you are planning to day trading penny stocks or swing trade the market, you can incorporate these strategies into your own trading. I will also show you how to find the best penny stocks to buy with free tools and apps.

If you already have a stockbroker account and understand the basics of penny stocks, you can skip part 1-5, and start reading from part 6.

1: What Are Penny Stocks
2: NYSE / NASDAQ vs. OTCBB Penny Stocks
3: How to Buy Penny Stocks Online
4: Penny Stock Trading vs. Investing
5: Trading Penny Stocks for Beginners
6: Trading Mindset
7: How Traders Lose Money
8: How To Trade Penny Stocks
9: My Recent Penny Stock Trades
10: Penny Stock Trading Rules To Follow
11: How to Find The Best Penny Stocks to Buy

What Are Penny Stocks?

Penny stocks are any stock trading under $5, according to the Securities and Exchange Commission (SEC). There are two types of penny stocks, the ones trading on regular stock exchanges such as NYSE and NASDAQ, and the other type of penny stocks are trading on the OTCBB market.

What Is The Difference Between NYSE / NASDAQ and OTCBB Penny Stocks?

Penny stocks are risky investments in general and stocks trading on the OTCBB market take the risk level to a new high. OTCBB penny stocks usually have very low volume and are extremely risky. Their stock price can be manipulated by one or a few big players and are often the target of the pump and dump scheme. Big players can artificially drive up stock through stock recommendations based on false or misleading information to pump its price. Once the small retail investors jump on the stock, the big players then dump their stock for profits whereas the retail investors are locked in for big losses. If you have watched the movie "The Wolf of Wall Street", you know what OTCBB penny stocks are. Penny stocks trading on NYSE and NASDAQ are still risky but are much safer compared to the OTCBB market. Stocks trading on the major stock exchanges are subject to tighter requirements and they report on-time information about their earnings and other events that may affect their stock price. Also, these penny stocks usually trade with more volume and higher price than the OTC stocks, and it is much harder for someone to pump their stock prices. This penny stock trading guide will focus on NASDAQ and NYSE stocks exclusively, beginners should avoid OTC stocks altogether.

How to Buy Penny Stocks Online?

To buy penny stocks online, you need to have an account with a stockbroker. TD Ameritrade and Fidelity are two of the most reputable brokers that you may consider. I personally have accounts with both. TD Ameritrade and Fidelity charge $0 commission for trading stocks, options, and ETFs. There is no minimum deposit required for both stockbrokers. They both offer a great trading platform and tools to execute trades smoothly and a robust research center that gives you important market information. You can also trade on your mobile phone as they offer trading apps for iPhone and Android. For traders who use stock charts to do deep analysis and would prefer to trade on their computers, you can install their powerful desktop software. Robinhood is another stockbroker that is popular among penny stock traders. Feel free to trade on Robinhood if you like.

Penny Stock Trading vs. Investing

Trading and investing in penny stocks are two different concepts. Investing is when an investor buys and holds a stock for a long period of time, anywhere from one year to many years. Investors buy stocks based on company fundamentals, such as earnings ratio, growth rate, P/E ratio, and many other factors that may affect the stock price in the long run. Trading, on the other hand, doesn't care about company fundamentals. Trading penny stocks is to buy and sell a stock within a much shorter time frame, anywhere from a few seconds to a few weeks. The goal for penny stock traders is to capture profits from short-term stock price fluctuations. Day traders usually open and close their positions within the same day, and many day traders glue to their computers. Swing traders usually buy and sell a stock within a few days.

Trading Penny Stocks for Beginners

Swing trading or day trading penny stocks are actually much tougher than many people may have imagined. Many beginners approach the stock market in the wrong way. They buy stocks based on a tip from a friend or a neighbor which is absolutely the worst way to trade. In stock trading, when there is a buyer, there must also be a seller. For one trader to make money, the other trader would have to lose money. It is you against the other. If you want to make money from trading, you must have an edge against the other traders. Fortunately, most people treated the stock market like a casino, and they have no idea of what they are doing. Ninety percent of the traders end up losing money, so it is not that hard for you to find an edge over these traders. Your #1 goal is to not end up being one of the 90% of traders who fail. To learn how to day trade penny stocks, you need to have an edge in the stock market. There are four things that you must learn in order to have an edge, technical analysis, chart reading, discipline, and a trading mindset. Trust me, it is easier said than done. It took me a few years to learn how to be disciplined. You must be dedicated to learning how the stock market works to play the trading game. To learn the basics of stock chart patterns, read the following articles.

Trading Mindset

I only trade penny stocks that are listed on the major stock exchanges such as NASDAQ and NYSE. I don't trade OTC penny stocks or Pink Sheet penny stocks because they are way too risky.

The most important lesson I learn about penny stock trading is that in order to make money consistently, your mindset is much more important than your trading strategy. Most people lose money trading penny stocks because they don't have the right mindset.

How Traders Lose Money?

People trade penny stocks because they want to get rich overnight. They see a penny stock that is making a 100%, 200%, 500%, or even 1000% gain in a short period of time, and they thought that is the norm. In reality, penny stocks go bankrupt on a daily basis and many get delisted from the major stock exchanges or moved to the OTC market. If you are holding one of those stocks, your stocks will go down and you may lose all your money.

So, what is the right mindset? The mindset is that you will never try to get rich with one stock or a few of them and that you are not going to get rich overnight. Your goal is to make consistent and smaller gains for each penny stock you trade. It is much easier to make a 20% gain on 5 penny stocks than one penny stock with a 100% gain, yet they achieve the same results. You will also need to learn that it takes a lot of practice and study of stock charts in order to make this kind of gains consistently, it doesn't just happen overnight.

How To Trade Penny Stocks?

Now we got the mindset out of the way, let's move on to the penny stock strategies that I'm using. First, I build up a list of penny stocks to watch with the following criteria.

1. Stocks from $0.8 - $5 - Find penny stocks that are trading in the range of $0.8 to $5 and trading on the NASDAQ, NYSE, or AMEX exchange.

2. Huge Spike in Price Recently - The penny stocks must have a single day where it spiked over 30%, and at least an 80% gain over one or multiple consecutive days within the past 20 days. In addition, the trade volume must be at least 8 million on the spike day and it should be much higher than the average trade volume. In other words, the penny stocks must spike with unusually high volume.

3. Falling Over 40% From Recent High - The penny stocks are now falling over 40% from their recent high with low trading volume, much lower than the day it spiked. This is very important.

I will now watch these penny stocks on my watchlist and wait for them to drop over 50%. If I like the stock chart pattern, I will put a limit order to buy the penny stock. Since the trading volume is much lower now, sometimes it might take a while to get my orders filled. Also, I put a limit order to sell my stock as soon as I bought the stock. The limit order is for profit-taking and my goal is 20% for each trade, I use mental stop loss in case the trade goes wrong. When a penny stock gap up, I end up making more than 20%. I made 35% on recent trade and then another for 55% gain when they gapped up the next day.

My Recent Penny Stock Trades

Let's look at some of the stock charts for my winning trades recently and discuss my penny stock strategy in more detail.

1. HTGM - The stock spiked with huge volume on 3/24 with an intraday high of $13.25. The stock then dropped over 40% with low volume the next few days, so I added it to my watchlist. I bought the stock at $5.35 on 4/5. Unfortunately, my order only got filled partially that day meaning there weren't that many people selling at that level by the time I set up my limit price to buy the stock. As soon as I bought the stock, I put a limit price to sell the stock for 20% profit from my entry price. Guess what, the stock hit my 20% target the next time and I sold my shares. The stock went much higher after I sold my share and then retracing. Note, I didn't sell the stock at a higher price but it doesn't bother me at all because I knew it is much easier to hit 20% than 50%. You will never be able to predict the high of the day, don't let your emotions such as greed take over you.

2. ZAIS - The stock spiked over 30% on 2/14 with huge volume and then it retraced the following few days with very low volume. I added the stock to my watchlist when it dropped over 40% and then bought the stock at $2.36 on 3/20. Again, I set my limit price to sell for $2.83 as soon as I bought the stock. The stock continued to go down after I bought it and then it gapped up on 3/24, 3 days after I bought the stock. The open price was much higher than my limit price and I ended up selling the stock for $3.64 with a gain of 54%. The stock kept going up after I sold my stocks before retracing. Imagine if I were to keep holding the stock, my profit would have been erased in the next few days. Remember, there is usually only one chance to sell, if you missed it, you may turn a winning trade into a losing one. So always set a limit order to sell your stock, so that you don't have to watch your stocks all the time.

3. INNL - The stock made a move with huge volume on 3/13 and then it made another high of $2.58 3 days later on 3/16. Note, my 40% and 50% rule is based on the highest price of the recent stock price so it would be based on the $2.58 on 3/16. The stock then went down the next few days with a much lower volume. I ended up buying the stock at $0.99 on 3/27 and sold it 2 days later for $1.33. Again, the stock gapped up and I made 34.4% which is more than the 20% limit price I set. Few days after I sold the stock, it was trading at almost $2.5 which is over 80% more than the price I sold. As I said, it doesn't bother me at all because I made a profitable trade.

Note, I don't automatically buy a stock when it dropped 50% from the recent high, I would study the chart and try to get in as cheap as possible. Of course, that means I would often miss some profitable trades, but it also prevents me from entering bad trades.

4. ZSAN - The stock made a big move on 2/13 with over 40 million trading volume, and then it made a new intraday high 4 days later at $3.54. In the next 10 days or so, the stock retraced over 40% with low volume and I added it to my watchlist. I bought the stock on 3/20 at $1.65 and sold it 3 days later for $1.99 for a 20.6% gain. The stock kept dropping right after I sold and never came back up for the next month. Therefore, it is important to always follow your rules and set a limit price for profit-taking right after you buy the stock. This way, you will never miss a chance to sell and also force yourself to be disciplined all the time.

How to Find The Best Penny Stocks to Buy?

You can find the best penny stocks to day trade or swing trade with the following free tools. 1. Penny Stocks Screener - You can find penny stocks that meet your price and volume requirement with our free penny stock scanner. 2. Top Penny Stocks - For those who are interested in penny stocks on the OTCBB market, you can get the top 10 penny stocks list. Our penny stock screener is available as mobile apps for Android and iPhone, so you can search and find penny stocks on the go. Penny Stocks for Android Penny Stocks for iPhone You can find the best penny stocks to trade with the above tools and watch the penny stocks on Robinhood.

Penny Stock Trading Rules to Follow

If you need the money for emergency use, don't use it to trade. Trading penny stocks is risky, especially for stock market beginners. You may lose all the money that you put in. Trading requires patience and if you are relying on this money to buy food or to pay rent, you will most likely get emotional and make the wrong decisions.

Always have a stop loss for each penny stock you buy. You should calculate your stop loss before you enter a trade. Trading penny stocks without stop loss is doomed to fail. When you trade without a stop loss, even if you make a 20% profit for each trade on 5 consecutive trades, you may lose it all on a bad trade. So setting a stop loss for your trade is extremely important.

Always use a limit order to buy and sell stocks. Never use market order because most penny stocks are illiquid, and there might be a big difference between the price you see on the screen and the price you end up getting.

If a trade is not going your way, get out. Some penny stocks won't move anywhere for a long period of time, you don't want to expose your money to risks with those stocks. Often, a stock chart pattern might look like it is going to make a move any time soon, but it is usually your imagination. So get out if the stock is not going up, you don't want to tie up your money for these penny stocks.

Most penny stocks have low trading volume and you will often have to pay more when buying a stock or sell it at a discount when you try to sell a stock. It is because there aren't that many buyers and sellers and you will have to pay more for slippage costs. So only buy penny stocks with high volume.

When you can't find the right trade setups, don't trade. This is a mistake that many stock market beginners make and I learn it the hard way. I used to trade all the time because I want to keep myself busy and sometimes I would trade stocks that don't fully meet my trading requirement. I ended up losing money on these trades and the losses added up quickly. Not only did those bad trades wash away my profit, but they also hurt my confidence in trading. I had to stop trading for a few weeks and analyzing what went wrong. I learned that when I made good trades consecutively, and my stocks were up 20%, 30%, and 50%, I let my ego get in the way. I felt like any stock that I touch would go up, and I started to overtrade which turned out to be a disaster. Eventually, I learn to correct my mistakes and now I'm much more patient. If I can't find a stock that meets my criteria, I won't buy it even if that means I had to wait a week or two or even longer.

Always remember you are trading penny stocks, not investing. Trading means you buy and sell a stock in a short period of time usually within a few days to a few weeks, whereas investing means you buy and hold a stock for a year or two or even longer. So if your stock is falling and hit your stop loss, sell it. don't try to double down or do anything crazy. I see many traders double down, and even triple down on a losing trade and eventually lose everything on a single trade. it is not worth it, take your loss and move on.

You should have a trade journey that lists all your trades, for both winning and losing trades. You should study them and learn from them, especially the losing trades. Try to find a pattern and avoid losing trades and learn from your mistakes.

You should always trade based on your strategies and rules. Never trade penny stocks based on tips from penny stock gurus or your friends. You can use the tips and do further research yourself, and see if the stock meets your trading criteria, just don't buy or sell the stock purely based on their tips.

You should always follow your own rules when it comes to penny stock trading. When you enter a trade, you should have a stop loss and a target price in mind. If the stock price hits your target or your stop loss, you should sell it. Never let your ego get in the way, and think this time is going to be different. Trading penny stocks and making money for the long term is all about discipline. If you let yourself break your own rule once, chances are you are going to break your rules again in the future, and eventually you may lose all your money because of one or more bad trades.

Every profitable penny stock trader has their own trading strategies, but it is not the trading strategies that are making them money in the long term, it is their discipline to follow their trading techniques and rules. To learn how to become a disciplined trader, read the book Trading in the Zone.

Penny Stocks Trading Guide for Beginners 2025