I have lots of members constantly asking for trading tips, and am excited to share 3 techniques that I have found extremely useful in penny stock trading. Whether you are a seasoned pro or newbie you should surely benefit from the lessons below. I have tried to make this tutorial as simple as possible, so that everyone can really grasp these 3 trading concepts. At the end of the day your goal should be to become a better trader so that you can maximize profits! All 3 strategies are based around the activity created by volume spikes and dips. In the penny stock world Momentum is King, and most momentum is built around huge swings in volume. By closely analyzing volume trends you should begin to spot price trends. You should be able to identify price breakouts and price breakdowns, and most importantly have a better idea of when to jump in a stock and when to jump out.
1. Watch for Heavy Volume Spikes in the Open Abnormal volume spikes in early trading are indicative of the stock having a price reversal. Typically, a price reversal on heavy volume is positive when the volume spike is preceded by a downward trend or flat line in previous trading days, weeks, or months. This is one of the signals that a breakout is about to happen! It’s important that you watch stocks in real–‐time in your trading account so that you can look for these large volume spikes at the open (usually within the first 15 minutes), which are a great indicator of potential gains.
2. Look for Pullback in the Stock Price after the 1st Volume Spike One of the most frustrating things for investors is missing out on a “fast moving” stock. But what I have noticed is that many times there is a Pullback on the stock price after the initial run. Most day traders will quickly jump out of a stock for quick gains after the opening run peaks. The idea is to look for the bottom of the first pull back. This usually occurs within the first couple hours. This strategy actually offers investors a great opportunity to buy in at the bottom of the pullback and ride another momentum wave. Many times the stock will soar to a new high. Sometimes if you’re lucky you can play a “double” which can allow you to profit twice in the same day by buying back into the stock and playing the second wave! Don’t worry about the day-trader rule. If this technique is used sparingly, you’ll be just fine.
3. Hold onto a stock that builds even more Momentum in Day 2 As critical as it is to choose a buying point, perhaps an even more important decision that all traders will need to make is when to sell. On a stock pick that does really well on Day 1, you have a choice to either sell now and take quick profits, or hold until the next day hoping to cash in on even more profits. That of course depends on whether the momentum continues to build through the next trading day. If you are still holding a stock in day 2 you’ll want to look for another volume spike and then watch for continued momentum or a sell off. Many day traders create limits for themselves. For instance, never letting a stock drop more than 5–‐10%, or on average getting out around 10–‐15%. Playing it safe can keep your trading account in a steady growth pattern. But on the flip side, cashing out too soon may mean missing out on extra money! Each individual investor needs to look at the charts, look at all the information and make a wise decision. Do I want to take my 15% and walk now or hold and hope for 25%? In the end, some dollars is better than no dollars. If you make a quick 10 – 15%, but missed out on 25 – 30% gains oh well. At least you made some profit, and maybe on the next pick may decide to get more aggressive with your holding strategy.
Following these strategies will enable you to become a much more profitable trader in the future. Remember, if played correctly, penny stocks can be one of the most powerful methods for building wealth extremely fast, however penny stocks are more risky than your average NADAQ or AMEX stock. Nowhere else can you make 50 – 100% gains in a few days, but at the same time if the momentum goes in the opposite direction you can lose money just as quickly. That’s why it’s important to play penny stocks with a strategy and stick to what works!
I look forward to helping you become a successful investor in the future.