We’ve been trading for over 5 years now and needless to say that penny stocks market has transformed dramatically since then. Honestly, we have seen how frequently the market evolve over the past years. In addition,plenty of different strategies have been mixed and filtered out when it comes to adjust technical analysis to trade best penny stocks. Trading plan is what every trader must have, it’s like a systematically built method which helps you make decisions and identify what penny stock you need to trade. While equities market is more of a long-term investment, penny stocks can be of both camps and you, as a trader should draw up a trading plan to gain from those.
As stated numerous times at this stage, penny stock market is a very speculative place especially when it comes to microcaps trading under $1.00. For instance, these stocks may plunge down 50% or soar up to 70% overnight. You’ve got to be very careful with such investments as bankruptcy is actually what you may encounter next by trading highly speculative penny stocks.
How to use technical analysis for trading penny stocks?
The best way to day trade penny stocks is of course through price movements or what they call it a ‘price action’ method. But before you jump in and open up a position – find the best penny stocks that have made or about to make those big runs going forward. How we do know what penny stock to pick out? Well, we need to be reliant on the following criteria:
Volume displays the total number of shares traded in a penny stock within a certain period. In the other words, these are transactionsmade between buyers and sellers, which will contribute to the total trading volume going forward. If you sell just 5 shares a day (and someone buys them from you) total count will be 5 for the time being. Volume measures the range of penny stock movements (usually on a day-to-day basis) and is a helpful tool in identifying liquid best penny stocks. Put some work in and start out with general observation: what is the average volume per day, look up the price spikes, find historical data.
There are plenty of grounds to mark penny stock market as volatile. Volatility (or change rate) states how rapidly and unpredictably the share of a penny stock changes. We may see over either a 100% takeoff to the upside or a 100% pitfall. Both scenarios are risky but still could help you make quick profits in intraday trades. Pick out a penny stock and watch how it moves along the broader market (aka benchmark). Use a beta value to see how correlated your security is against the rest of the stocks.
- Price Action
Price of a share is concerned with OPEN, HIGH, LOW, and CLOSE prices in given time frames. These are all characteristics of the price moves and could be applied in trading strategies along. Study penny stock chart patterns, which are based on price changes in the recent pasts. Don’t buy tops or sell bottoms – look up either bull or bear patterns to set up a valid trade.