How to Pick Penny Stocks in Day Trading
Penny stock, as defined by the SEC (Securities and Exchange Commission), is any stock that trades under $5. In general, however, this is the name given to any low priced or low market capitalization (price of stock x number of shares outstanding). Picking low capitalization stocks is very difficult and extremely risky, especially for day trading, but if you're going to risk your money, there is one thing to look for: "vol."
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Instructions
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Understand the concept of "vol" or volatility. This is what day traders live on because the more volatile a stock, the more likely you will be able to make a gain from a price movement. Volatility is a measure of the rate at which a stock price fluctuates throughout the market session.
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Use a stock screener to find the right stocks. There are several stock screeners on the web. Most online brokers offer one and one is also offered by Yahoo! Finance and Google Finance.
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Set the stock screen to look for companies with a stock price of greater to or less than $5.
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Set the screen to have a beta of more than 1 or less than -1 (the higher or lower the more volatile). Beta is a measure of market risk. In general, a stock with a beta of one is market neutral; that is, it moves in tandem with the market. Theoretically, a stock with a beta of 2 moves twice as much as the general market. You should find this screen in stock statistics.
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Click "Enter" and results should be a list of stocks priced under $5 with greater price movements during the day than the general market. Research these stocks and practice with paper (virtual) trades first.
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- Photo Credit penny graph image by RT from Fotolia.com
