The Lowdown on Penny Stocks


Hey there, I’m Ross Cameron. You might already know me as the guy who took an account with less than $600 and turned it into over $10 million in verified profits, but did you know that a good chunk of that from trading penny stocks? While my results aren’t typical, penny stocks highlight what’s possible in the stock market today, especially for retail traders like us. In today’s blog, I want to talk more about penny stocks so you can get a better idea of the strategies that I use to trade them. Let’s dive in!

Understanding Penny Stocks

First off, let’s clear up what penny stocks actually are. The SEC labels any stock under $3 a share as a penny stock, which is funny because, to me, a penny stock should literally be trading for pennies, under a dollar. However, the SEC says that even stocks in the $1-3 range are considered penny stocks. Personally, I like to focus on stocks priced between $1.50 and $20.

One thing you’ll find interesting is stocks over a dollar trade with a minimum one penny spread. Stocks under a dollar, on the other hand, can trade down to the hundredth of a penny. That’s a game-changer because it means a stock can have a lot more price increments to move through before hitting that $1 mark, affecting how quickly its price can change. In my view, stocks generally have a harder time going from $0.50 to a $1 then they do going from $1 to $1.5.

The Types of Penny Stocks You’ll Encounter

You’ve got penny stocks on major exchanges like NASDAQ and NYSE, which are generally more reliable. These companies are fighting to keep their stock above $1 to maintain their listing status. Then, you have the ones undergoing reverse splits to up their share price, a process that can often repeat in a downward spiral. It’s a tale of potential turnarounds or endless declines.

And let’s not forget about Over-The-Counter (OTC) stocks. These can be the Wild West of penny stocks, with less regulation and more volatility. The infamous pump and dump schemes often involve these types of stocks. So while some traders might dip their toes in the OTC waters, I steer clear. My sweet spot is stocks listed on the bigger exchanges, priced from 10 cents upwards.

Finding and Trading Penny Stocks

My strategy hinges on finding stocks showing big moves. I use scanners to spot top gainers – stocks making significant jumps in price. This often means they’re in high demand, which is exactly what I’m looking for. Liquidity is key; I need to be able to get in and out quickly without affecting the stock price too much.

Today, I dived into a penny stock trade with 5,000 shares of a stock up nearly 70% for the day. The reason behind the pick? It’s one of the top gainers, and despite its low price, it’s trading on a major exchange, so it’s not as risky as you might think.

A Trade Walkthrough

Let’s talk about my NSTG trade. I got in at 20 cents a share, right when it looked poised for another upswing. Here’s the thing about trading penny stocks: you’re looking for momentum and that quick next wave up. With NSTG, the setup looked just right.

But it’s not all about buying; selling is just as crucial. I have mental stop orders to minimize losses and consider trailing stops to let profits run, but it’s important to note that I don’t use actual stop orders. I always enter and exit my trades with limit orders. For this trade, I was only risking about one penny per share, which meant my total risk was pretty low.

The stock did its dance, moving up and then pulling back, but I played it cautiously, snagging a bit of profit to ensure I didn’t walk away empty-handed. The final tally? A 12% gain on my account in a single day. Not too shabby, especially for a trade done without leverage.

Contrast NSTG with MLGO, a penny stock that soared over 200% in one day. I missed the boat on this one, but it’s a perfect example of how explosive penny stock trades can be. The key takeaway? Volume and float matter. MLGO’s smaller float meant it could make massive moves on less volume.

Wrapping Up

So, there you have it. A glimpse into my world of trading penny stocks. From understanding what they are, identifying which ones to trade, to executing and managing trades. It’s a thrilling journey, but not without its risks.

For those eager to dive deeper, I’ve made a small account challenge strategy PDF that lays down my approach in more detail. You can download it here.

Thanks for sticking around. Trading isn’t just a job for me; it’s a passion. Sharing this journey with you is just the icing on the cake. Happy trading!

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Warrior Trading was founded by Ross Cameron in 2012. Today Warrior Trading is a thriving community of thousands of day traders learning to trade under the curriculum designed by Ross.

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