How to Trade Penny Stocks as 2021 Comes to an End
With 2021 coming to an end for penny stocks just as quickly as it started, investors continue to search for the best small caps to buy. To understand how to find penny stocks that are worth it, it first takes a thorough understanding of what penny stocks are. This is a multifaceted question with several answers that investors need to consider.
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For starters, we have to understand the definition of penny stocks. This is crucial to considering how they trade and how to take advantage. The next step is looking into what is causing movement with penny stocks right now and whether money can be made with those. Lastly, investors need to have a thorough and consistent understanding of their own unique trading strategies. This is arguably the most crucial part as it will define whether you can make money with penny stocks or not.
At the end of the day, buying and selling penny stocks is all about having a unique edge and using a strategy that is consistent. While it can seem like gambling at times, there are definitive ways to improve your odds of making money in 2021. With all of this in mind, let’s take a look at how to trade penny stocks and three to watch as 2021 comes to an end.
How to Trade Penny Stocks in 2021
- What Are Penny Stocks?
- What Factors Are Impacting Penny Stocks Right Now?
- How to Trade Penny Stocks
What Are Penny Stocks?
By definition, penny stocks are any stock trading under $5 per share. Yes, it’s that simple. However, there is more to understand. Before we go any further, it’s worth noting that penny stocks are typically quite volatile. This can mean very large price swings in both directions during the course of any trading day.
As a result, investors need to be careful and understand the risk of losing their entire investment or hopefully, the opposite. Because penny stocks are any security under $5, there are hundreds of options to choose from. While many think that penny stocks only trade on OTC or pink sheet exchanges, most tend to focus on those traded on large exchanges such as the NASDAQ or NYSE.
One important aspect to consider with penny stocks or any stocks for the matter is volume. Volume is the number of shares of a stock traded in a given day. Normal volume is anywhere from 1 million and up, while above 5 million may be high, and below 1 million may be low. Of course, this varies based on the price of a stock and how popular it is. If volume is very high, it can indicate that a stock is more popular than usual and the same goes for the opposite. In addition, volume directly impacts liquidity. So, with all of this in mind, there are plenty of penny stocks to watch right now.
What Factors Are Impacting Penny Stocks Right Now?
The most important factor impacting penny stocks right now is the Omicron variant. This variant came to be a few weeks ago and has many mutations that other variants do not have.
As a result, transmissibility is extremely high although the severity of disease is quite low. This is causing a sizable amount of negative momentum and overall volatility. In the past few weeks, we’ve seen several selloffs due to the Omicron variant. And in the past few trading days, this has increased substantially as fears continue to be reignited by higher case numbers and shutdowns.
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Next on the list is inflation. Inflation is the result of billions in stimulus given out over the past two years alongside the pandemic itself. While this is the result of the pandemic, it has become its own symptom. So, we see that all of these factors together are creating the highly volatile market and large fluctuations that are characteristic of the stock market in 2021.
How to Trade Penny Stocks
When it comes to trading penny stocks, there are two distinct strategies that investors tend to lean towards. The first and most common is the swing trading method. This involves finding short-term trends to take advantage of. Swing trading can be done in a few minutes to a few days and anything in between. This is a great strategy with penny stocks as it takes advantage of the frequent movements that we see with small caps.
The next strategy that traders use is less common, although it can be valuable if used correctly. This strategy is long-term trading as is quite obvious by way of its name. Long-term trading uses the potential of penny stocks to escape penny stocks status. While this is not as common as small movements, it does happen at times.
Both strategies rely on a consistent understanding of your own trading style and how to take advantage. And as mentioned earlier, buying and selling penny stocks needs to be done with the notion that prices do and will change very frequently. With that in mind, it all comes down to deducing which strategy you will use.
3 Penny Stocks to Watch Right Now
- Petros Pharmaceuticals Inc. (NASDAQ: PTPI)
- New Gold Inc. (NYSE: NGD)
- SeaChange International Inc. (NASDAQ: SEAC)
Which Penny Stocks Are You Watching Right Now?
If you’re looking for the best penny stocks to buy, there are hundreds of options to choose from. As a result of the sheer number of penny stocks out there, it can be difficult to pick just a handful for your watchlist. But, with the right research by your side and a consistent understanding of what is affecting penny stocks, it can be much easier than previously imagined.
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With that in mind, always understand that penny stocks can move very frequently in value. And although this is well known, many investors forget and end up losing money. So, with all of this in mind, which penny stocks are you watching right now?
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