How to Research Penny Stock Fast and Efficient

Last Updated: September 26, 2020

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In this article, I want to introduce you to four powerful methods on how to research penny stocks. Learn how to find penny stocks before they explode and how penny stock trading differs from other trading styles.

Trading Penny Stocks vs. Investing in Penny Stocks

What type of penny stock investor are you? Do you want to make short-term profits with penny stocks exploding within one specific day, making profits day trading breakouts and pullbacks? Are you looking for investment opportunities to find companies with a high probability of long-term growth? It is important to ask you that question before you start your research on penny stocks.

How to find penny stocks to day trade

Day trading penny stocks requires fast and accurate scans. No matter if you trade on a major exchange or pink sheet listed stocks, you need to spot a move quickly, and a few cents can make a huge difference. My favorite stock screening research tools for day trading penny stocks are Trade Ideas and Black Box Stocks.

Trade Ideas

Trade Ideas is the most powerful penny stock scanner but also the most expensive one. The scanning capabilities of Trade Ideas are nearly endless. About 500 different filters and trade alerts can be combined with an infinite number of scan methodologies. Let’s say you only want to see shares in the $1 to $5 price range, with an average daily volume of 500,000 shares, a pre-market gap up of >10%, a pre-market traded volume of 1 million shares, and you want to get an automatic alert whenever a new high is made within a trading day.

You set your variable criteria in the config window, and once you click okay, your list will be created. You can add all filters as columns and freely modify, adjust and optimize your settings. You can add a trade alert to get the automated notifications when a new high was made if they retraced a certain amount.

While most other scanners out there already have problems getting this scan done, it is one of the easiest things to set up for Trade Ideas. Start Trade Ideas, type in your filter criteria, and you are off to the races. Penny stock research is easy to do with Trade Ideas. The scans can be defined on criteria like technical analysis patterns, price action, and fundamental data. Trade Ideas is a paid stock screener, and the monthly costs with this discount code start at about $75. The subscription includes real-time market data, access to a live trading room, charts, and more. The premium subscription additionally comes with A.I. trade assistance and automated trading via Brokerage Plus.

Black Box Stocks

Black Box Stocks is another excellent tool to spot and trade penny stocks. Black Box Stocks is a mix of community and tools like stock- and options scanners. The scanner is not as flexible as Trade Ideas, but it does a decent job spotting volatile stocks. There is also a pre-market scanner and post-market scanner available. The top 10 gainers list focuses on the algorithmically identified stocks, and the alert stream can be filtered based on dark pool prints, 52 week high/lows, price spikes, halts, and low float.

Various free trading rooms are available to subscribers, and penny stocks are traded often. The tool unfolds additional power when it comes to unusual options activity scans and the complimentary TheFly news feed. The discounted membership price for the first month is only $79.97. The reduced price will be automatically applied during the signup.

How to find penny stocks for long-term investing

Long-term investing in penny stocks is entirely different from penny stock trading. The stock market offers so many investment opportunities, and when investing in the long term, a company and its financial situation need to be analyzed in detail. My favorite tools for this purpose are Finviz and Stock Rover.

Finviz

Finviz is one of the most prominent financial visualization tools. I used it 20 years ago, and until today Finviz never lost attractivity. Users can effectively use the tool to filter stocks on descriptive, fundamental and technical data. The free version comes with some limitations, but it is a good starting point.

Go to Screener and chose All. Then select Price $1-$5 to limit the results to typical penny stocks. From here, you can apply additional filters. As said before, for longer-term holds, it is essential to look at a company’s financial health. Finviz can help you with that. You get access to news and further details if you click on a ticker symbol. A subscription to Finviz Elite is the right choice if you want to filter in more detail. The Elite subscription also provides access to advanced charts, backtests, correlation analysis, advanced screener settings, notifications and alerts along with real-time market data. Prices start at $24.96 per month.

Stock Rover

Stock Rover takes penny stock analysis for investors to a whole different level. Similar to Finviz, you can start by filtering the price to $1 to $5 range. But there are hundreds of other filters in all the different folders on the left. You can filter by growth, income statement figures, returns, volume, and so many more. The key to the best penny stock trading candidates is the filtering process within Stock Rover. First of all, you need to reduce the number of shares by defining filters like price, earnings, Piotroski F Score, Altman Z-Score, Cash per Share etc.

Once done, you can use the comparison tables with automatically generated grades on all stocks. Value investors use Stock Rover as their favorite tool to analyze large-cap and growth stocks, but also penny stocks can be analyzed by using it. Interestingly, there is a 14-day free trial available, and trial-subscribers receive a cool discount offer via email during the fourteen days.

Penny stocks to watch

First and foremost, it is crucial to understand that you can buy stocks for pennies, but the lower a stock price, the higher the chances that the stock will never be listed again on a major stock exchange. And if a stock is not listed on a bigger stock market, then chances are that you will never find a buyer for your penny stocks.

I nearly never trade or invest in penny stocks under $1 and avoid stocks near the $1 since once a Nasdaq stock falls apart, the delisting is near. OTC is the result, and OTC trading leads to low volume, often higher fees, and less transparency. I know it sounds so tempting to buy shares for $0.01 or less to sell it later for $0.10. But the point is, there is a reason for shares being in the $0.01 area.

Also, people often look for a list of penny stocks to watch. The truth is that there will never be a fixed list of penny stocks to watch because prices change quickly, the reported financial condition of a company can change overnight, and the list would be not that valuable anymore. Therefore it is important to scan for meaningful penny stock candidates whenever you plan to trade or invest this type of stock.

How to Research Penny Stocks: Bottom Line

You can improve chances to make money trading penny stocks by utilizing the powerful trading tools. It is essential to define the goal of investing in penny stocks. Day traders focus on high volume penny stock gappers in a price range of $2 to $5, while long-term investors do their comprehensive fundamental research based on key financial figures.

Shorting penny stocks is a trading approach that works well intraday on easy to borrow shares, while overnight holdings of shorted stocks comes with a higher risk.

You are well-advised to trade lower-priced stocks using a simulated account or simulate investing using a virtual portfolio first. The world of penny stocks is tempting. Penny stocks often gain by 100% or more within one trading day. But if you set this relative to the total number of listed stocks, you will quickly notice that it needs hard work and good preparation to spot those companies before others do. The utilization of a powerful stock screener is my favorite way of preparation.