The first step to trading penny stocks successfully is you must be in the stocks that have the highest probability of making a strong run. But how do we know which ones will be the big movers?
That’s where our proprietary scanners come into play. I have customized them to find stocks that only meet my specific parameters which gives me an edge because I only want to trade stocks that I know have the potential to make a big run.
My two main scanners are Small Cap – Top Gappers and Small Cap – High of Day Momentum. Both of them scan for stocks that are moving big on high volume.
Small Cap – High of Day Momentum
The High of Day Momo scanner is great for after the market opens. It picks up stocks that are surging up on high volume and with in our price parameters. If I don’t have any stocks that I am watching in the premarket then this will be my go-to scanner.
Small Cap – Top Gappers
The Gap Scanner will show all of the stocks that meet my volume and price parameters but are also gapping up in the premarket, which tells me that they usually have some kind of news catalyst.
I can then sort the scanner by how much volume the stock has had or by what percentage the stock is gapping up.
I have three specific parameters that I use to look for penny stocks that have the highest probability of making a huge run.
Parameter 1: Breaking News – First I look for stocks that are gapping up because of some kind of news catalyst like FDA approval or earnings but we want to stay away from any stocks that are being bought out because they usually don’t trade away from their purchase price.
Parameter 2: Float – Ideally I want to the float to be under 100 million shares but under 50 million is even better. This is because when a stock has a small amount of shares to trade and there is a lot of buying interest then it could push shares up very quickly which is exactly what we are looking for.
Parameter 3: High Relative Volume – I like to see the stock active in the premarket with solid volume. Usually stocks with news will be gapping up in the premarket on really good volume so I know right off the bat that this stock will have plenty of liquidity for me to trade with size.
Once I make my watchlist of the best-looking stocks with the above criteria I will wait for the market to open and see if breakout over premarket highs for an entry or wait for a bull flag pattern.