Liquidity issues with penny stocks can beat you up pretty bad. However, these can also be incredibly volatile. Two kinds of stock that I know of that you might see go up 5x to 10x intraday... pharm, and penny stocks. I find pennys to actually be a lot of fun to trade. I sometimes scan for under $5 stocks with lots of premarket volume and price action, then I just jump in for a few hundred shares at the bell. If it had crazy relative volume before the bell, something is going on with that one. Want to waste 20 minutes googling the company, or bet out on the action while it is happening? Yeah. I THOUGHT you would say that.
But can you make a LOT of money? Nah. You need a hyoooooge position even with tremendous volatility, and you can't close out quick enough sometimes when you got a position of a thousand or thousands of shares. Or you are trading a dozen at once, and you have to watch these little guys close, because they can nosedive and stop you out in seconds, or nosedive and cost you considerable coin if you didn't use a stop. It is hard for me to closely watch three stocks at once if there is a lot of action. So that's a problem, yeah.
Remember, ten cents per share profit on a hundred shares is ten bucks. Pretty small potatoes. Ten cents per share on a thousand is still only a hundred. Okay, so that isn't so bad. A couple or three like that and you got your day made. But if your stock is opening at ten cents, you might well be looking at two or three cents per share on a winner, so two bucks on a hundred shares and twenty on a thousand. You can make money faster mowing lawns.
I don't really watch stocks under 50 cents, for that reason. A big position might be hard to get out of. A small one pays too small even if it takes off. Dollar to five dollar stocks can give you some stimulating action though.
As for strategy you can just watch for a few consecutive bull candles and a pullback, and then the first bull candle after a possible bottom reversal, with good volume, make your play. Or do what I do, and bet out at the bell on a penny stock that was showing crazy volume and price action premarket. If it isn't showing you anything after a half dozen 5 minute candles, it probably isnt going anywhere. After the first hour, look for lots of up and down action, and set up to buy limit, at the apparent level of support. Let it trigger on the dip. Don't chase it. If you miss it, you miss it. No biggie. There will be other trades. Then set a stop below support, and a limit sell order just below resistance to take your profit. There has to be enough action to pay your commission on the trades, though. You are not going to be able to short these little guys. Just buy the low at support, sell the high at or just below resistance. If it breaks out, buy in again and if it looks good, lots of volume, buy in some more. Remember though, you still need to manage risk and be ready to bail cause these stocks are heavily manipulated. Watching for pet candle patterns doesn't work well for penny stocks, I have noticed. Go with the volume and price action. Keep an eye on five minute, and minute or less candles. Don't watch just one. Watch the price tick up and down, too. Don't wait for the next candle if you get a bad feel from the tick action... bail sooner rather than later, especially if you are holding a lot of shares. Its not strategy. It is just getting in the ring and slugging it out. YMMV. This advice is guaranteed to be worth exactly what you paid for it.
