How to Make Money With Penny Stocks When the Market is Down

Waking up to see your portfolio in the red is one of the worst feelings for any penny stocks investor. But, there are some tips and tricks to avoid this and have the best chance at making money with penny stocks. In the past year and a half, we’ve seen more volatility in the stock market than in many years prior. 

With the combination of the pandemic, high inflation, and major uncertainty all working against you, how can you make money with penny stocks when the market takes a dive? Well to do so, we have to consider what is going on right now. 

Today on July 19th, the S&P 500 dropped by more than 700 points, indicating one of the worst declines of the year. Simultaneously, cases of Covid are rising rapidly in the U.S. due to the highly transmissible Delta variant. 

While this is disheartening for most traders right now, there are always natural ebbs and flows in the market. And, when markets are down, especially as much as they are today, it presents an opportunity for investors to buy in at extremely low prices. 

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In addition to all of this, we are in the middle of earnings season. This is another added stressor onto an already stretched thin market. So with companies like Netflix Inc. (NASDAQ: NFLX) and Johnson & Johnson (NYSE: JNJ) reporting their quarterly earnings this week, investors are stressed, to say the least. 

While some penny stocks are performing well right now, it takes a prudent and educated investor to find the best ones to buy. With all of this in mind, let’s explore three tips and tricks to make money with penny stocks when the market is down. 

Making Money With Penny Stocks in a Down Market 

  1. Trading Penny Stocks: Risk Tolerance 
  2. Finding Penny Stocks That Could Benefit From a Bear Market 
  3. Buying and Selling Penny Stocks at the Right Time 

Trading Penny Stocks: Risk Tolerance 

Understanding your risk tolerance is one of the most important factors in buying and selling penny stocks. While it may seem like a nonissue, many investors are unable to stomach the high volatility that comes with the territory. With penny stocks, high volume and low prices mean that values will change greatly over the course of a trading day. 

making moeny with penny stocks risk

And, this is especially true when we factor in the effects of retail traders and meme stocks. This includes penny stocks like 1847 Goedeker Inc. (NYSE: GOED), Jaguar Health Inc. (NASDAQ: JAGX), and more. But, there are hundreds of options for penny stocks that are less volatile and may be better suited to more conservative investors. But, understanding what type of trader you are will help to make sure that your portfolio aligns with your investing goal. 

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One metric investors can use to determine volatility is known as beta. This is a metric that measures exactly how volatile a stock is in relation to the market as a whole. If the stock’s beta is above 1, it is considered more volatile. If it is below 1, it is less volatile. Obviously, this is a simple definition of a relatively complex term, but it is a great metric to use for your watchlist. Considering all of this, understanding your risk profile will help to give you a better chance at having your portfolio reach your investing goals. 

Finding Penny Stocks That Could Benefit From a Bear Market 

This is arguably the most important step to making money with penny stocks when the market is down. Having the ability to find potentially valuable penny stocks in a bear market is one that will extend to all market conditions. The biggest piece of advice here is to understand how certain companies could benefit and to think outside of the box. 

For example, when Covid began, many biotech penny stocks quickly dropped in value substantially. This was a result of large market uncertainty and a general fear of the future. However, just as quickly as they dropped, markets began to pick back up with companies seeing record highs.

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While this affected biotech companies working on a Covid vaccine or treatment, for the most part, it also affected those that were not. In addition to this, many investors decided to bet on retail penny stocks, hoping that economic recovery and stimulus would benefit the retail market. And those that did, were able to win big in many cases. 

penny stocks to benefit from bear market

Lastly, investors looked at the energy market to see how it could benefit from the pandemic. When Covid began, just as biotech did, energy penny stocks dropped in value. This made sense as fewer people were traveling and most were stuck at home.

But, the obvious turnout of this would be people having a larger desire to travel once restrictions began to lessen. And because of this, many energy penny stocks have since bounced back in big numbers. So, while these are just a few examples, they do illustrate how thinking outside of the box can help to make you money when the market is down. 

Buying and Selling Penny Stocks at the Right Time 

Buying and selling penny stocks at the right time is the last step in rounding out your bear market investing strategy. While the day of a major drop may seem like a good time to buy up all you can, usually bearish trends can go on for a few days at the least. So, keeping a strong eye on the market will help to show when the right buy-in time could be. 

Additionally, investors should take a look at analyst sentiment to see what projected prices are for a specific penny stock. While these should be taken with a grain of salt, the vast research that goes into these lists makes them great resources to use in your hunt. 

buying and selling penny stocks

And, just as important as knowing how to buy penny stocks, is knowing how and when to sell them. If you’re a short-term trader, like most who trade penny stocks are, setting a price target and a time frame will be a major benefit to you. This will help to mitigate FOMO and ultimately, any major losses. 

If you’re a long-term trader, setting a price target will also be a big benefit, but usually, the longer the time frame, the better the chances are of making a profit. With this, all of your research at this stage should come in handy and help to inform your decisions. At the end of the day, knowing how and when to buy and sell penny stocks will be a great asset to your overall portfolio. 

Are Penny Stocks Worth it When the Market is Down?

At the end of the day, investing in penny stocks is something that is a completely individual experience. Understanding what type of trader you are and what your tolerance for risk is will be a major asset on your way to profitability.

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So, when the market is down, it may be a great time to find penny stocks that could have long-term value. Because most major drops are based on speculation, many investors expect the invisible hand to work its magic at some point in the future.

While predicting the market trajectory can be difficult, having a strategy and knowing how to trade penny stocks will always come in handy when the market is down. 

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