3 Tips For Investing in Penny Stocks in a Down Market
When the stock market is down, it presents a sizable number of opportunities for penny stock investors to capitalize on. But, it takes understanding why the market is down to do so. With penny stocks, there are several differences that traders need to keep in mind. First and foremost is that penny stocks don’t like to play by the rules. This means that even if the broader stock market is down, there are still plenty of ways to make money with penny stocks.
During a bearish market turn, we can often see a large number of penny stocks that climb substantially. This is due to their overall volatility and the high speculation that comes with stocks under $5. So, finding penny stocks that could do just that is a winning strategy that many traders attempt to use. But to do so, there are three things to keep in mind.
First and foremost is understanding what caused the market to drop. This can help to determine which industries could be worth watching and why. Second, traders need to have a strategy that is both individualized and in line with the reason for the market dropping.
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And lastly, investors need to know where to find the best penny stocks to buy when the market is down. This means understanding which stocks could benefit and what their relationship to the broader market is. So, with all of this in mind, let’s take a look at three tips and tricks for making money with penny stocks when the stock market is down.
How to Make Money With Penny Stocks When the Market is Down
- Understanding Why the Market is Down
- Strategies for Trading Penny Stocks in a Down Market
- Finding Penny Stocks to Buy When the Market Turns Bearish
Understanding Why the Market is Down
More times than not, when the market crashes there is a reason for the major declines. If we look at today on September 20th, the main reason was a crash in the Chinese housing market. As a result, one of the largest investors in real estate in China came close to defaulting. While there is not always one concrete reason for a market crash, there are usually a combination of factors that are contributing. Right now, there are several aspects that investors should understand to use as an advantage for their portfolios.
The first and most obvious is the pandemic. Although case numbers are dropping in some areas of the country, investors are still showing signs of fear in the market. This means that volatility is high and that we are seeing many days with bullish and bearish trading patterns. The second factor in play right now is a combination of ending stimulus and high inflation in the U.S.
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Both of these have investors sitting on the edge of their seats for the future. So, as we see, it is difficult to pinpoint one succinct reason that the market is down right now. But, if we combine all of the happenings of late 2021, we see that it makes sense. And, with all of this, investors can begin to form a strategy on how to trade in the current stock market.
Strategies for Trading Penny Stocks in a Down Market
When it comes to trading penny stocks in a down market or any market for the matter, there are a few strategies to consider. First and foremost is the choice to find penny stocks when they are down, and hope for an eventual rebound. This is usually a longer-term strategy (more than one trading day) and can result in sustained gains if done correctly. Often, those who trade penny stocks will do so in short term or swing trading methods. But, traders forget that there are plenty of penny stocks with long-term potential.
To do this, investors should have a thorough understanding of the company in question. In addition, traders should consider if its price dropped due to overall bearish trading or news relating to the company. If it’s the latter, it may be worth staying away from. However, if the price of the company dropped on non-company related news, it could be worth looking into at a value price.
The next strategy is short-term or swing trading. Even in days of large downtrends, many penny stocks can bounce back either later in the day or at random periods throughout. To make money by swing trading, investors should have a strong trading education and a commitment to understanding how to read chart patterns. All of this will help to ensure that you know exactly what you’re doing in this regard. Whether you’re looking at penny stocks for the long or short term, having a trading strategy will always be your best friend in a down market.
Finding Penny Stocks to Buy When the Market Turns Bearish
Finding penny stocks to buy in a downtrend is a mixture of the above tips, in combination with thinking outside of the box. For example, when something is affecting the market, often we will see an inverse reaction with a correlating industry.
Let’s say that the oil and gas industry takes a hit. We could see alternative energy penny stocks rise as a result. Or, let’s say that the real estate market is down due to inflation. With this, we could see more stable stocks such as gold stocks or mining stocks, begin to push up. As you can see, there is always a clear cause and effect. And even if it isn’t clear in the moment, it can become more clear as time passes.
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So, think outside of the box, and use all of the information you can gather as a way to guide your investing strategy. While it may be hard right now given that there are so many different variables at play, utilizing this method can help to give your portfolio a greater chance of profitability. Considering this, which industries are you watching in September 2021?
3 Penny Stocks to Watch Right Now
- Leap Therapeutics Inc. (NASDAQ: LPTX)
- Reed’s Inc. (NASDAQ: REED)
- Entasis Therapeutics Holdings Inc. (NASDAQ: ETTX)
Are Penny Stocks Worth Buying?
When the market is down, it can be a challenge to find penny stocks that are worth buying. However, this doesn’t mean that it is impossible. Rather, by using a strong investing strategy, research, and a creative approach, it can be much easier to make money with penny stocks in 2021. Considering this, do you think that penny stocks are worth buying right now or not?
