Penny stocks are known for their volatility, so having a clear exit strategy is crucial for protecting profits and limiting losses. One of the most effective methods is setting price targets before entering a trade. Investors should decide in advance at what price they’ll sell to take profits or cut losses. This prevents emotional decision-making when prices swing rapidly.

Another key approach is using stop-loss orders. By placing an automatic sell order at a set level, traders can minimise the impact of sudden downturns. For example, setting a stop-loss 10–20% below the entry price can protect capital while allowing room for natural fluctuations.

Some investors also use a trailing stop to lock in profits as the price rises. This adjusts automatically as the stock moves upward, ensuring gains are secured without exiting too early.

Scaling out is another smart strategy. Instead of selling all shares at once, investors can sell portions gradually as the price increases. This balances risk and reward while capturing multiple profit points.

Lastly, setting time-based exits can help avoid being trapped in stagnant positions. If a penny stock doesn’t perform within a specific period, it may be better to exit and reallocate funds elsewhere. A disciplined exit plan helps maintain consistency and protect overall returns.