A Few Useful Penny Stocks Day Trading Strategies

Penny stock day trading is when you trade low-value equities for pennies per share in a single session. Sometimes, you might trade these penny stocks for a few minutes or a couple of hours. It differs from traditional investing because your position sizing is much smaller instead of extending for months or years.

» Interested in penny stocks? Here's how to start trading penny stocks online

Penny Stock Day Trading Strategies

1. CFDs

Contracts for Difference (CFDs) are contracts that let you potentially profit from price changes in stocks without owning the actual instruments. You speculate on price movements by opening and closing positions based on market news, charts, or signals.

» Learn more: Fundamentals of CFD stock trading

2. Scalping

Scalping consists of buying or selling shares of penny stocks to potentially profit from minuscule gains (a few cents at a time) in the share price. Scalping is highly fast-paced and depends almost exclusively on highly liquid securities.

3. Momentum Trading

Momentum trading isn't limited to day trading; it can also be applied in swing trading. It involves attempting to potentially profit on a stock's upward trend by monitoring its price and volume, buying as it rises, and selling near its peak.

4. Breakout Trading

Breakout trading relies on technical analysis and trading signals to identify penny stocks breaking out of their trading range to gain momentum. For example, if a penny stock has been trading between $0.58 and $0.65 for months but suddenly goes above $0.65 due to increased volume and external factors, that's generally the point that traders could focus on.

» Need more tips? Here's how to day trade in a volatile market

Risk Management in Penny Stock Day Trading

Day trading may seem straightforward, but it's essential to incorporate risk management. The key tool for this is the stop-loss limit, which restricts potential losses by setting a predetermined threshold, like placing a stop-loss order.

Whether you're day trading penny stocks or blue-chip stocks, you should trade only with funds you can afford to lose.

» Ready to get started? Learn more about opening an account with Fortrade