How To Make Money With Penny Stocks In a Down Market

How To Make Money With Penny Stocks When The Market Is Down

Waking up to see your portfolio in the red is one of the worst feelings for any penny stock investor. However, there are some tips and tricks to avoid this and have the best chance of making money from penny stocks. In the past year and a half, we’ve seen more volatility in the stock market than in many years before.

Given the combination of the pandemic, high inflation and great uncertainty working against you, how can you make money on penny stocks when the market collapses? To do this, we have to think about what is happening.

Today, July 19th, the S&P 500 fell more than 700 points, indicating one of the worst declines of the year. At the same time, the Covid cases in the USA are increasing rapidly due to the highly transferable Delta variant.

While this is daunting for most traders right now, there are always natural ups and downs in the market. And when the markets are declining just like they are today, this gives investors the opportunity to buy into at extremely low prices.

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In addition, we are in the middle of the earnings season. This is another added stressor to an already tight thin market. With companies like Netflix Inc. (NASDAQ: NFLX) and Johnson & Johnson (NYSE: JNJ) reporting their quarterly earnings this week, investors are stressed to say the least.

While some penny stocks are doing well right now, it takes a prudent and educated investor to find the best ones. With that in mind, let’s examine three tips and tricks for making money on penny stocks when the market is declining.

Making Money With Penny Stocks In A Declining Market

1. Trading Penny Stocks: Risk Tolerance
2. Find penny stocks that could benefit from a bear market
3. Buying and selling penny stocks at the right time

Trading Penny Stocks: Risk Tolerance

Understanding your risk tolerance is one of the most important factors when buying and selling penny stocks. While this doesn’t seem to be an issue, many investors are unable to endure the high volatility that comes with this area. In the case of penny stocks, high volumes and low prices mean that the values ​​change significantly over the course of a trading day.

And this is especially true when we factor in the impact of retailers and meme stocks. These include penny stocks like 1847 Goedeker Inc. (NYSE: GOED), Jaguar Health Inc. (NASDAQ: JAGX), and more. However, there are hundreds of options for penny stocks that are less volatile and better suited for more conservative investors. However, knowing what type of trader you are can ensure that your portfolio is aligned with your investment objective.

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One metric that investors can use to determine volatility is known as beta. This is a metric that measures exactly how volatile a stock is relative to the overall market. When the stock’s beta is above 1, it is considered more volatile. When it is below 1, it is less volatile. Obviously, this is a simple definition of a relatively complex term, but it’s a great metric to use on your watchlist. With all of this in mind, you can better understand your risk profile so that your portfolio can meet your investment goals.

Find penny stocks that could benefit from a bear market

This is arguably the most important step in making money from penny stocks when the market is declining. The ability to find potentially valuable penny stocks in a bear market will extend to all market conditions. The biggest piece of advice here is understanding how certain businesses could benefit and thinking outside the box.

For example, when Covid started, many biotech penny stocks quickly lost value. This was a result of great market uncertainty and general fear of the future. However, as quickly as they fell, markets began to rebound and companies made record highs.

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While this affected biotech companies working on a Covid vaccine or treatment, it also largely affected those who weren’t. In addition, many investors chose to bet on penny stocks in retail in the hopes that the economic recovery and stimulus would benefit the retail market. And those who did, in many cases, could win big.

Finally, investors looked at the energy market to see how it could benefit from the pandemic. When Covid started, energy penny stocks, like biotech, fell in value. This made sense because there were fewer people out and most of them were stuck at home.

The obvious implication, however, would be that once the restrictions wear off, people would have a greater desire to travel. And because of this, many energy penny stocks have rallied in large numbers since then. While these are just a few examples, they illustrate how thinking outside the box can make money when the market is declining.

Buying and selling penny stocks at the right time

Buying and selling penny stocks at the right time is the final step in rounding out your bear market investment strategy. While the day of a big decline may seem like a good time to buy it all up, downtrends can usually continue for at least a few days. So if you keep a close eye on the market, you can see when the right buy-in time might be.

Additionally, investors should take a look at analyst sentiment to see what the forecast prices are for a particular penny stock. While these should be used with caution, the extensive research that goes into these lists makes them great resources to use in your hunt.

And just as important as knowing how to buy penny stocks is knowing how and when to sell them. If you’re a short-term trader, like most of those who trade penny stocks, setting a price target and time frame will be a huge advantage for you. This will help mitigate FOMO and, ultimately, major losses.

If you’re a long-term trader, setting a price target is also a huge asset, but usually the longer the time frame, the better the odds. With that, all of your research at this stage should be useful and help you make your decisions. At the end of the day, knowing how and when to buy and sell penny stocks is a great addition to your overall portfolio.

Are penny stocks worth it when the market is down?

Ultimately, investing in penny stocks is a very individual experience. Knowing what type of trader you are and what risk tolerance you have will be vital on your path to profitability.

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So when the market is bearish, it can be a good time to find penny stocks that could have long-term value. Since most large drops are based on speculation, many investors expect the invisible hand to work its magic at some point in the future.

While it can be difficult to predict what the market will do, it is always handy to have a strategy and know how to trade penny stocks when the market is declining.

Midam Ventures, LLC | (305) 306-3854 | 1501 Venera Ave, Coral Gables, FL 33146 | news@pennystocks.com

source https://thedailytradingnews.com/how-to-make-money-with-penny-stocks-in-a-down-market/