TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence. 

Even with broader markets pulling back and cryptocurrencies taking a larger focus recently, higher-risk assets continue to captivate traders. I'm not going to go to the extent of a previous article and label them Reddit penny stocks, for instance. I think retail has expanded far beyond one independent social media platform. Obviously, Reddit has played its own role, but now that millions of new traders have been introduced to speculation and momentum trading, penny stocks, as a whole, have gained momentum. The problem that we see right now is that follow-through has been lacking.

I don't mean follow-through related to a stock breakout on a minute-by-minute basis but one that at the very least lasts a full day. If you've traded penny stocks during the last year, you'll remember a period where small-cap stocks were red hot. It wasn't just single-day breakouts but multi-day moves from hundreds of cheap stocks. Recently, however, it's becoming more of a stock picker's market. Is this a bad thing? Should you avoid all penny stocks if you can't day trade them? In short, no, but you should have a full understanding of what you're getting into when it comes to cheaper, more volatile assets. 

Something else helping build momentum behind these smaller names is the rise in things like Dogecoin and other digital assets. We saw NFT stocks captivate interest over the last few months. This saw plenty of speculation influences certain trends. Even if companies didn't have a formal update saying they were getting into NFTs, the exposure that some of them had to digital assets, including online art sales, did the trick.

Initially, Takung Art (TKAT) and Oriental Culture Holding Ltd (OCG) paved the way. Neither company initially reported an update related to NFTs. Still, as tech trends further emphasized the hype behind non-fungible tokens, retail traders took to these stocks hoping to be ahead of a potential move into space. Neither company has made much noise, and both former penny stocks are far off of their highs.

Should You Buy Penny Stocks Right Now?

To answer this question, you'll need to have a good understanding of your own risk tolerance. How do you handle volatility? Are you able to hold stocks that go down more than 5-10%? This is a very real thing when it comes to trading penny stocks. Since these types of stocks are known for their big swings in price, both up and down, it isn't unusual to see shares down 5-10% one minute, and the next position is in the green 20-30%. In addition to this, as a trader, do you have an exit strategy? Making sure you're taking profit is obviously the most important part of making money with penny stocks. But emotions can sway your judgment in many ways. "What if it just keeps going a little higher?" That's a question I'm sure you've asked yourself at one point or another.

Take some of the popular penny stocks today (April 21). Alterity Therapeutics (ATHE) gapped up big on Wednesday morning. The company said that it plans to unveil "very encouraging" data to strengthen further the evidence that its lead drug candidate, ATH434, is neuroprotective in brain regions implicated in Parkinson's disease. Overnight, ATHE jumped more than 14%. But then stalled during the regular session. If you were holding the penny stock from earlier in the week, will you take profit or hold?

On the other hand, you've got a company like Asensus Surgical (ASXC). Shares jumped early on April 21st, reaching highs of $1.95 before the lunch hour. This was up nearly 30% from its previous close and was also a bounce off the penny stock's 200-day moving average. While this was a nice 1-day move, it followed a much longer-term downtrend that began in February.

Once again, depending on which side of the trade people were on, ASXC has either been a rock star in the short term or a big bag in the longer-term time frame. As an aside, if you actually purchased the stock before the second week of January, and for some reason, held through the big move, the position is slightly green for the year.

Other penny stocks mimicking that Asensus trend on April 21st included Castor Maritime (CTRM), which jumped on strong energy sector momentum. You also saw a rebound in NFT penny stock Hall Of Fame Resort & Entertainment (HOFV) shares. Now, will this same momentum remain for the rest of the week? Again, follow-through hasn't been the strongest when it has come to penny stocks as of late. Needless to say, if you are familiar with how to trade these low-priced shares, you already know that securing profits when they're on the table comes first. So "tomorrow" may not be as important as the action we see "today."