Before diving into answering why you should look for a high-volume penny stock to trade.
Let’s talk a little about penny stock for those of you who may be new to this.
As well as for those of you who are unfamiliar with this particular market.
What’s a penny stock?
Although the name states penny stock.
it’s actually very rare to actually find a company that’s selling its share for a penny.
But if you look for them, you’ll definitely find some.
I must tell you I’ve had some very bad experiences with them in my early years of trading.
If you ever stumbled on a company that’s selling its shares for less than a penny per share, I advise you not to trade them until you understand the market.
Save yourself from the headaches because it’s more likely what you’ll find ahead.
Generally, investing in penny stocks isn’t like investing in blue-chip stocks. Wall-street has all the blue-chip stocks listed but you’ll find just a few companies of penny stocks on there.
A blue-chip stock is the nickname that investors utilize to call the regular stocks; they’re not penny stocks.
A penny stock is any stock that’s trading for $5 or less per share. Most of them are over the counter (OTC) stocks or pink-Sheet.
Any stock that’s trading below a dollar per share is a penny stock. They fail to meet some specific criteria which causes them not to be on the National Stock Exchange. Every stock has a ticker symbol, and each ticker symbol is for one stock or company only.
What’s a Stock ticker
If you have the habit of watching financial television channels you’ve seen stock tickers before. A stock ticker is a 1 to 4 letters name designed for every company.
When you’re buying stocks, you’ll find them with their ticker symbol name. For example, if we look for the company named Puxin Limited on any financial website, we will find that it’s named NEW.
You’ll need to have an online Stockbroker in order to trade stocks
To kick start your trading journey you will need an online stock brokerage firm.
An online broker is like a bank that allows you to deposit your money and then use their platform.
You then can use this fund to trade stock.
Securities Investors Protection Corporation (SIPC) is there to protect your money.
Although SIPC is a security avenue for your money. All investing involves risk, including the loss of principal. The Federal Deposit Insurance Corporation (FDIC) isn’t part of the stock market.
There are so many of them to choose from, but I’ve already done the work for you.
I will refer you to one of the best brokers out there which is the broker I myself use.
If you register through the following link, you and I are both going to get at least1 free stock share.
If you’re like me who like to use your cellphone.
you’ll be able to easily do all your trading through your cellphone.
Know about Stocks trend before you pick a high-volume penny stock to trade
A stock can be trending upward, downward, or sideways. Looking at the stock ‘s chart is the best way to find its trend because it’ll show you the stock’s history.
You’ll see if the stock constantly increases in price which is an upward trend.
Or if it’s on its way down in price which is a downward trend
As well as if it’s just trading at around the same price throughout which is called sideways.
An upward trend is your best bet to buy as more people are buying at this time and the higher is the trading volume the more likely it’d be for you to make profits.
Inversely, the lower is the trading volume the higher is your chance for your portfolio to go down. When it’s trending sideways there are many things to look for and it’s mostly about the history of the stock.
Look for its support and resistance because these two can give you a clear image of the intention of the stock as it stays on a sideways trend.
What do we call a stock’s portfolio?
In your brokerage account you’ll be able to buy shares from as many companies as you would like given that you have enough fund in your account.
A portfolio is the total value on your account. It combines value of the stocks you own plus your buying power (the money you have left).
So, in a day-trading your portfolio can go up or down depends on the stocks activities that you own.
From the previous paragraph I was talking about stock’s history when they’re trading sideways; their support and resistance are two good factors to look for to have a better view of them.
Support and resistance definition
The Support and resistance signals are very important for a stock trader. Support is when the stock has a minimum price that it cannot cross to go down any further.
For example, on the chart, you’ll see that the price goes down to 2.00 dollars and then goes back up at least more than once and never goes lower than 2.00 dollars. This is what we called support.
On the other hand, resistance is the opposite of the support where the price has a ceiling that it can’t break out of to go upward any further. Many investors use this as a positive sign to buy shares when they find a stock that has just brakes through its resistance.
Now that we have this information out of the way, let’s proceed to our question at hand and clear it up for you.
Why should you look for a high-volume penny stock to trade?
A high-volume penny stock is a stock that has good potential as compared to a low-volume one. There are many signals to look for before picking a stock to buy your shares, the volume level is a good one to start with.
Before you see any change in a stock’s price there are many things that happened which you may not see if you’re not looking for them.
For example, company XYZ may have just released a positive newsletter; or the company might have just created a new product or something as such.
If you were to buy shares from company XYZ and you didn’t know anything about its recent transactions, the first thing you’ll notice is a surge in its trading volume. Therefore, when you see stock with a high-volume it may be a good sign.
How to look for A penny stock with high-volume
For someone who doesn’t know it can be a challenge; but honestly, it’s very easy to find a high-volume penny stock to trade.
You will need screening software and don’t worry there are tons of free ones out there for you to use. One of the best free screening software is Finviz.
Finviz is very user-friendly and it’s extremely easy to understand the data on there. The home page usually has stocks that are either increasing or decreasing the most for the day. They also call them the most active stocks of the day.
If you search for one of those tickers in the Finviz search box, it’ll show you all the information you need including the volume which is already on the home screen as well.
Why should you look for a high-volume stock to trade?
Honestly, the volume of the stock itself isn’t the only reason to buy a stock. There are stocks that always have high volumes, but their prices don’t move enough. If you’re buying a stock, you’re expecting to make a profit from your transaction.
To make profits from your transactions the price of the stock that bought your shares should increase from its previous price. If that doesn’t happen, then you can’t make a profit.
Therefore, when you’re looking for a high-volume stock to trade you also have to look at its price. Look at the price trend to see if the volume is a positive signal of the stock movement.
Always keep this in the back of your mind when you’re trading, a price’s movement is more important than its volume. And if you spot a stock that’s surging in price it should have a high-volume trading as well.
Therefore, a high-volume stock should also have a positive trending in its price. If you don’t see that then you might want to stay away from it because it might be just a strategy to get those who don’t know about it.
Be aware of pumps and dumps when looking for a high-volume stock
One very common illegal activity of the stock market, especially for the penny stocks, is the pump and dump scheme.
A pump and dump scheme is an illegal method where many people, such as shareholders, or even the company itself are promoting a stock. Sometimes they would even have paid promoters promoting them to increase their price.
Why would they want to do this so-called “pump and dump?”
It’s pretty simple!
They promote the stock from which they currently own some shares which is the pump. Once they pump the price to the level they desire, then they sell off all their shares.
Those who acquire shares during the price peak are those who are the victim of the scheme as they’ll soon see the price plummets drastically.
By then it would be too late for them to realize what exactly is going on. Their only chance would be to sell off and get the money they have left, otherwise, their portfolio will decrease drastically.
Some traders actually take advantage while those con artists are making their own profits. In order to do this, you’d have to know what you’re doing.
That’s why I’d not advise beginners to take this path.
However, if you aren’t new to this you can definitely try to make some profits from the pump and dump stocks yourself.
So, how do we spot a pump and dump stock?
1-Promise of big profits:
Anytime they promise you big profits from a stock you should reconsider. It’s a big red flag because no one really knows when their big profits will come.
We can assume, but we cannot know really for sure of any stock’s outcome.
I do believe you’ve known that by now if you’ve been trading penny stock already.
2- Pump and dump stocks are more likely to be sub-penny or penny stocks, although nowadays manipulators are able to pump any stock.
It’d be harder to find a stock in a pump and dump list which is not a penny stock. Most of them are penny or sub-penny stocks but be mindful that they can also manipulate the regular stocks as well.
Fortunately, it’s easier for them to recover and maybe make your money back.
3- Reverse takeover
Most of the penny stocks that undergo a reverse takeover usually have promoters inflating their prices behind the closed doors.
What’s a reverse takeover?
A reverse takeover a fancy name for a merger.
Private companies use this method so that they can become eligible to be on the stock market.
They get this done by acquiring just enough shares to control a publicly traded company.
Once this is done the private company has become a publicly traded one.
4- The flatliners
Some stocks are usually flat lined on their graphing figure. They’re stationed at one place and never make any move. All of a sudden, their volume and price start increasing out of nowhere.
Those stocks are the ones you should be careful with because prices don’t just start increasing for no reason. Especially for a stock that never shows any movements.
It’s considered to be a big red flag. Be very, very careful with them!
And it’s also a reason why you should not rely solely on a high-volume penny stock to trade. Sometimes the high volume isn’t natural, it has tons of scammers behind the scene pumping the volume up in the hope of skyrocketing its price.
5- Trading surge
Seeing the volume of a stock surge from a couple thousands to millions in one day should tell us something isn’t right.
Either they have some very good promoters out there, or they have a way to increase the volume themselves. Hence, high volumes may not be a positive signal in that sense unless you know what you’re getting yourself into.
Don’t get fooled by them, their goal is to lose you money while they’re gaining money. They’re becoming rich at the expense of your hard-earned money and your hurtful loss.
Why should you look for a high-volume penny stock to trade?
High volume penny stocks mean that there are lots of buyers, it means that investors believe in the company or stock, it also means that people see potential in the stock.
Nonetheless, you should never disregard all the points I’ve shared with you in this post concerning high-volume stocks.
Make sure you find the reason behind the increase in volume. If you can’t find one I’d suggest you try to stay away.
Before you trade always do your due diligence because it’s the only way you’ll be able to pick the right stock for yourself. Don’t rely solely on other people pick for your trades although some of them are good.
Good luck trading and don’t forget to share this post if it was helpful to you.
Comment in the comment section below as well.