If
you’ve heard anything about the stock market in the 21st century, you
may have run across one or more of these common myths surrounding the
market. The Internet is full of information, but it is also full of
misinformation and falsehoods that are read and spread around bars, golf courses,
and office water coolers and break rooms all over the country. Being
able to identify these myths will help you avoid losing money in the
stock market and to make better investment decisions.
It’s Easy - While the stock market is indeed not too difficult for those who apply themselves and get the necessary knowledge, it is by no means for those people not willing to take the time needed to learn the rules (written and unwritten) of the stock market. This can take a lot of time. Also, experience is needed in studying trends and learning when to buy and sell to make the most profit. While it’s not overly difficult, it’s by no means “easy money.”
It’s Too Complicated - On the other hand, there are those who say the stock market is too complex and complicated to be a steady investment in the long term. While that may be true for those not willing to commit the time and energy needed to become familiar with the stock market and the way it works, it’s not true for everyone. In fact, many people have been able to teach themselves - or learn from others - how to expertly maneuver the stock market for a profit.
It’s Elitist - While this may have been true at one time - especially when it comes to women and minorities - today, the stock market is as fair as any other industry in America. That is to say that it’s not elitist at all and offers many different types of people the opportunity to make money.
It’s Tanking / Recovering - If you study the stock market for any length of time, you are going to see that there are periods of growth and periods of decline. This is the way the market works. Worrying too much that the trends are going to keep going one way is pretty much useless. The longer the market moves in one direction - a bull or bear market - the higher the chance that it’s going to switch around and head in the other direction. This has been shown time and time again since the market has been recorded accurately and studied over long periods of time.
You Need Millions - While it would be nice, of course, to have millions of US dollars at your disposal to invest in the stock market, you do not need this much money. Of course, you want to make sure that you’re not spending your rent money to invest in stocks for short term gains, but in general most people with a few thousand dollars or more may be in a good spot to invest some of that money in the stock market.
More Risks, More Rewards - While this is certainly true in some cases, it’s not a hard and fast rule by any means. Some amateur investors take huge, unnecessary risks thinking this is the best way to big riches. In most cases, it ends up being a one way ticket to losing everything on the stock market. The wise investor will occasionally take risks, but there should always be something more steady in play to balance out any risks you do take on the market.
What Goes Up Must Come Down - The laws of physics do not apply to the stock market. This is a very important lesson. All stocks that go up will not come back down - slowly or quickly. In some cases, stocks will rise and stay there for a long, long time. There are no guarantees in the stock market - especially when it comes to how high a stock can rise without falling.
Falling Stocks Will Rise After 52 Weeks - This may happen in some cases - or maybe even sooner - but nothing is guaranteed in the stock market. So, just because a stock has been going down steadily over the course of a year does not mean it will suddenly rebound and come back. This is a common way for many people to lose money on a stock that’s not going to make a comeback anytime soon. Generally, investors view a stock on its fundamentals and future prospects. If the company is not fundamentally sound it may never rebound.
A Little Knowledge Goes a Long Way - In fact, someone with just a little knowledge trying to invest in the stock market may find that a little knowledge is in fact dangerous when it comes to trading on the modern market. With a global economy and many other factors at play, if you don’t know all the rules - written and unwritten - you’re going to want to make sure you know as much as possible so that you can decrease the chances of losing money. Do your homework on companies. Read their financial reports and press releases and understand the markets they play in so you can better understand their prospects for growth and the stock’s price appreciation potential.
There are other myths surrounding the stock market, but these should be enough to get you thinking about whether or not everything you hear about investing in the stock market is true or not. With so much information available these days, it’s more important than ever to have a gatekeeper or editor of sorts to make sure you’re only getting the very best information available. If you decide to trade stocks, get an online brokerage account that gives you access to research data and company information so you can always do your homework before you invest.
The truth is that the stock market is a great way to make money in the short term and the long term. If you know what you are doing, you can make quite a return with your money. Avoiding the myths of the stock market is one important way to make sure you do the best that you can do.
In simple terms, stochastics look at the closing price as a percentage of the high-low range over the number of periods. The basic formula is:
%K=100((Recent Close – L)/(H-L))
The H and L represent the highest and lowest close over a certain number of time periods (n), typically 14. The indicator takes a 3 period moving average of this %K to get %D, which is then plotted.
Fast and Slow Stochastics
In this case, %K is the raw data, and %D is a short moving average of that, so the lines see a lot of action and react quickly to the market. This is a fast stochastic, and many investors prefer smoothing out this action to avoid false signals.
It is common for traders to use slow stochastics, in which %K(slow) is a 3 day moving average of the raw %K(fast), and then %D(slow) is a 3 day moving average of %K(slow). Note that in slow stochastics, %K is actually the same as what %D(fast) is and %D(slow) is actually a moving average of a moving average.
Using Stochastics as Indicators
Since stochastics are a percentage of the high-low range, the value will always be between 0 and 100. The first use of the stochastic oscillator looks at this percentage to indicate whether a penny stock is overbought or oversold. When stochastic lines are over 80, the stock is overbought and it is a bearish signal, while stochastics under 20 are oversold. Another method is to wait for the stochastic line to either cross down below the 80 threshold before selling and waiting for it to cross over the 20 mark to buy.
Another way to use stochastics as indicators is to look for crossovers between %K and %D, since %K is faster moving and can signal a trend when compared with a slower %D line. When %K crosses from above to below %D, it hints at an upcoming sell off, and %K crosses from below to above %D signal a bullish trend and are a buy signal.
The third way to use stochastics as indicators is to look for divergences between the stochastic lines and the stock price chart. This is done by looking at trends in the two graph’s resistance and support lines, which connect the highs of the peaks and the lows of the valleys respectively. For example, you might see the stock chart have a flat resistance line which looks like the highs will maintain, but the resistance line of the stochastics could be descending. This would act as an early warning of a sell off when things look otherwise bullish on the price chart.
Like all indicators, false signals are possible and several types of indicators as well as date ranges should be combined to get a stronger and stronger sense of market conditions. With that said, stochastics offer an interesting look at where a stock is trading in relation to its recent range and can be very useful indicators when trading penny stocks.
These are the standard order that buys or sells the stock right then and there, at whatever the current price is. It is not guaranteed that you will get the price you just saw online or on television, but typically it will be close to that. These orders also typically carry the least amount of fees and transaction costs.
Stop Loss Orders
Designed to protect traders from drastic plunges, stop losses set a point below the current price that, if hit, will trigger an order to sell the position. If the stock increases, the stop loss does not come into play and you maintain your position.
Trailing Stop Orders
Similar to a stop loss, but sets the trigger in terms of percentage rather than a price point. This means these orders can be used to protect gains, because if the stock has a great upswing and subsequently falls by the percentage set in the order, a sale will be triggered and the gain will be realized.
Short Sell Order
These are bets that a stock will go down in price. With short orders, the trader is actually selling the stock and agreeing to buy the shares at a later date. If the price does in fact go down, the gain is the difference between the initial sale and the price when the trader buys back the shares to cover the trade. With penny stocks it can be difficult to short because the broker often lacks enough shares to lend traders in order to make the initial short sale. Many brokers also restrict short selling to stocks above a certain price, which can eliminate penny stocks.
When putting together a trading strategy, it is often the case that you must plan around the tools you can use. Stock market order types are a large part of your tools and when used correctly, can enable traders to let their winners run and cut losers short. It is important to know all restrictions and availabilities of your particular broker or platform in order to know exactly what can and cannot be done in any situation that arises.
Moving averages plot the average of a past number of days as time goes on, and MACD typically charts the difference between the value of a 12 and 26 day exponential moving average. This difference chart then has a 9 day moving average, or “signal” line, added on top of it, and the way they cross each other signals buy or sell opportunities. When the MACD crosses below the signal line it is a bearish sell signal, and when it crosses above the signal line, it is a buy signal.
Stochastics
These indicators track momentum by looking at where a stock closed in relation to its recent high-low range. The recent close is expressed as a percentage of the high-low range and this data is used to plot various indicator lines, known as %K and %D. Signals can be obtained in several ways, including by %K-%D crossovers, stochastic lines going outside the 20-80% threshold, or divergences between stochastics and the stock price chart.
Bollinger Bands
These “bands” are lines plotted two standard deviations above and below a simple moving average for a stock. Since standard deviations reflect recent volatility, the bands will move closer together towards the moving average when there is less volatility and farther away when there is move price action. Traders look for the price chart to move towards these bands as bullish or bearish signals. If the price moves towards the upper band, it indicates the stock is overbought and due for a drop, and price movement towards the lower band reflects the stock being oversold and ripe to buy.
RSI (Relative Strength Index)
This indicator looks at momentum of a stock based on the average of its gains in positive closes divided by the average amount of its losses on down days over a set number of days. This comparison of what amount it goes up by to the amount it normally goes down by yields an index of 1 to 100. If the index nears 70 or more it is a sign that the security could be overbought and ready to turn down. When the index goes towards 30, it is a bullish indicator that the stock could be undervalued.
Technical indicators are more useful with shorter term data and holding periods, as is typically the case with penny stocks. While it is important to get as much fundamental company information as possible, traders are dealing more in short term trends than year over year growth. Gathering as much knowledge and practice with technical indicators as possible sharpens the process of spotting trends and in the end, creates better traders.
The most attractive thing about penny stocks is the basic math involved. When you are dealing with stocks under $5, almost any price swing have a sizeable impact on your overall return. Consider the difference between a $1 stock going up 50 cents and the same gain for a blue chip $100 stock. In terms of percentage, you would make half of your investment on that one move for the penny stock, but only a tiny gain on the blue chip.
The companies behind penny stocks are usually small start-ups and it is important you conduct your own due diligence and research them before investing. Look for businesses in industries you understand, where you will be able to predict what a promising business model looks like. Also, look for a company backed by a reputable management team and with promising early sales numbers. Any information that points toward the company being a seed of something larger is valuable to investors looking at penny stocks. This is how many of the biggest corporations we hear about today got started.
Huge Reward Upside
The potential payoff of penny stocks is immense. When you consider that businesses like Microsoft (MSFT) started as penny stocks trading around $2, you start to understand that the upside is almost unlimited. A 10, 100, or even 1,000 times return on investment is in the realm of possibility. This is not to say every small company will become a giant multinational corporation, but that is in the ballpark you are dealing with.
It is important to remember, however, that there are considerable risks involved with penny stocks as well. Small dips in price can cut into a large percentage of your investment.
The Excitement of Penny Stocks
Investors that appreciate the risks and rewards of penny stocks are able to go in with the right mindset. They do not count on penny stocks to be a sure thing, but have some money they are willing to risk with a promising company for the chance to see a huge return and be part of the next big thing. It is far more exciting than watching the big board, blue chip stocks, because you can look up at price changes and know that every 5 or 10-cent jump can be making a fortune for someone, somewhere. The question is will it be you?
In the coming weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know. Bookmark us or subscribe to our penny stock alerts today.
One issue with the penny stock market is that liquidity is often a challenge. Since there is no formal exchange to trade on, it is difficult to know for sure that there will be a buyer or seller when you see an opportunity to take a position. Check penny stock communities online, talk to other traders, ask your broker or several brokers if there is any buzz about the particular stock. These sources will give you an idea of whether there has been any significant volume of trading for the stock that is likely to continue. Keep in mind that it will often not be the case with these small cap stocks, but when you find a relatively liquid one it is certainly a good sign.
Positive Press Releases
Since the information regarding companies behind penny stocks is limited compared to index listed companies, the press releases a company puts out are often a key information source and can swing the price of a stock. Look for patterns of positive events in the business development of the company through these press releases, such as growing sales, development of new products, possible acquisition news, and more. These press releases will often coincide with a significant upswing in the stock’s price.
Technical Indicators
There is a vast array of technical indicators that can be used to analyze the direction a stock is trending in. Learn the basics of moving averages and their crosses, and build from there. The more technical indicators you learn, the more angles you have to test against each other when analyzing a potential buy. Some other popular technicals include stochastic oscillators, MACD, RSI, and Bollinger Bands. Technical indicators are often used in combination to confirm a good stock pick once a buy signal is triggered.
Charts
In addition to technical indicators, there are many positives you can determine from the price chart itself, without further manipulation of the data. Learn common patterns to pick out and get an idea of what a chart will do. A predictable rolling pattern will often develop, and triangle chart patterns can tell you whether sellers are overpowering buyers or vice versa. When you see a chart pointing towards bullish price action, you know you are looking at a potential buy.
Success in the penny stock market is determined based on such small price moves that it is important for traders to use a multifaceted approach to their analysis. The better you get at using these tools, the earlier you will be able to spot trends to take advantage of, and your bottom line will be better off for it.
In the comping weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know.
The longer the period of days in the average, the smoother the chart will be. However, shorter moving averages more accurately reflect the short term trends. Some typical moving averages are 15, 20, 30, 50, 100, and 200 days.
Moving Averages as Trade Indicators
To use moving averages as signals to enter or exit a position, chart a moving average on the same graph as either a shorter moving average or with the regular stock price chart. Look for the stock price or shorter term moving average to cross the line of the longer moving average from lower to higher. This is a buy signal, also known as a golden cross. The opposite, when the stock or shorter moving average dips below the longer one, it is a sell indicator or a dead cross.
Note that this strategy should only be used when the moving average is clearly trending and not when it is flat. Crosses of a flat moving average are not accurate and should not be relied on. To be extra cautious, look for a cross to hold for a few days before making the trade.
Types of Moving Averages
A basic moving average that calculates all days in the date range in the same is known as a simple moving average, while an exponential moving average or EMA weighs the more recent days in the range more heavily.
The extra weight on recent days in EMAs can work to reflect developing trends faster than SMAs. However, EMAs are more susceptible to respond to random noise in the short term and indicate a trend that is not actually developing. Traders often use both types together to double check trends they believe are developing.
The proper type and date range to use will depend on the trading strategy and industry involved. Penny stock traders have been successful with many systems, but the basics of moving averages are a constant. With practice using them, investors become better and better at noticing trades, and this only helps their bottom line.
In the comping weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know. Bookmark us or subscribe to our penny stock alerts today.
Recent events have shown that effective risk management is a trick that not even the largest institutional traders have mastered. The irrational fear of having a losing trade is a phobia that afflicts many penny stock traders. Realistic traders understand that not every trade will be a winner. The key trick is to recognize your losers quickly and cut those stocks loose. Seasoned penny stock traders employ stop-loss systems to minimize their overall risk.
2 - WATCH THE MARKET MAKER
Penny stock traders notoriously spin conspiracy theories relating to the activities of market makers. Many of these theories border on the insane, however, there is a kernel of truth to this line of thinking. Smart penny stock traders watch the price action for telltale signs that the market maker is poised to take the stock one way or the other. The ability to decipher these situations is a trick that can potentially yield obscene profits.
3 - DON'T BE LONG ONLY
The vast majority of penny stock players are long only traders. This means that they only buy penny stocks, and they never short them. Some mistakenly think shorting stocks is unpatriotic, or even evil. There are situations that dictate going long a stock, and there are situations that portend a stock's decline. Only playing one side of the equation greatly limits your opportunities. Taking advantage of short opportunities is an important trick for a good penny stock trader to have within their routine.
4 - LISTEN TO THE CONFERENCE CALLS
The vast majority of losing penny stock traders do not follow the news and filings of the stocks they trade. Decent penny stock traders read the transcripts of company conference calls. Superior traders use the trick of finding the archived conference call and actually listening to it as opposed to relying upon the transcript. Hearing the CEO’s and other top executives’ voices often yields valuable insights. Actually listening to conference calls is time consuming, but this trick often can serve to either prevent a loss or maximize a gain.
5 - BE A CONTRARIAN
Many penny stock traders go with the flow and follow the herd into crowded trades. Seeing that the majority of penny stock traders are losers, logic dictates that one would want to go against the crowd. Learning to be contrarian is a penny stock trick that puts you in the minority -- which most often represents the smart side of the trade. Learn to identify the signals of a crowded trade. These become evident when all of the so called pundits are touting a given stock and everyone thinks it is a "no-lose proposition.” Once you have identified this situation, go against the crowd.
6 - USE THE RIGHT BROKER
When trading penny stocks, a good trick is to learn how not to be tricked by your broker. Fees and commissions charged by brokers can be complex and confusing. Some brokers charge an outrageous per-share trading fee, which translates to huge commissions for penny stock traders. Many pay these commissions unaware that less expensive alternatives exist. Check out this penny stock broker list at OTCPicks.com.
7 - BE BEARISH UPON REVERSE SPLITS
Many stocks in the penny stock world attempt the neat trick of a reverse split. A reverse split is the same type event as a regular stock split, however, with a reverse split the amount of your shares decreases. Companies often use a reverse split as a last ditch effort to prop up share price or to reduce a bloated share count. Although the concept of "always" does not exist in the trading world, one can come quite close to saying that stocks "always" decline immediately subsequent to a reverse split. If you own a stock that announces a reverse split, you should sell it quickly. If possible, try to short stocks right after a reverse split occurs.
8 - NEVER AVERAGE DOWN
Penny stock traders notoriously attempt to reduce their basis in a given position by averaging down. Avoiding this temptation is a required trick for penny stock trading success. Smart traders jettison losing positions quickly. Continuing to hold, and adding to, a losing penny stock position is a surefire recipe for failure. Smart traders bail on their losses and let their winners run.
9 - DON'T BE A PIG
While it is smart to let your winners run, it is piggish not to take chips off the table during a positive run. The most frustrating occurrence is what traders call a "round trip" trade. This is when you watch one of your penny stocks rocket upward without selling only to see it fall back down to where it came from -- yielding you zero profits. Sell into runs up and pick a reasonable target where you will exit your position enjoying the fruits of the trade as opposed to watching them disappear.
10 - DON'T BELIEVE THE HYPE
The management of a penny stock company is prone to put out enough press releases to wallpaper a house. Some smart traders have hypothesized that there is an inverse relationship between stock performance and the average number of press releases put out weekly by a company. The trick is not to be swept up by the hype and dive into a stock because the CEO says in a press release that he believes good things might happen in the future.
Those are just a few of the tricks or strategies employed by the top penny stock traders. Be sure to follow Penny Trader and OTCPicks.com as we continue to uncover the latest techniques and strategies to ensure your trading success.
2 - Risk. Investors have to understand risk. While it is true that you can make outrageous returns on your investments, the opposite is also true. Be sure to set up stop losses to limit any overexposure. subscribe to our newsletter and get access to our upcoming in-depth guide explaining stop losses.
3 - Volume. Stocks with good volume are easier to get in and out of. Always look for building volume when you prepare to enter into a new position. Good buying volume can signal aggressive accumulation and can foretell a move upward.
4 - Markets. Know what market your stock is traded on. OTC markets or Pink Sheets are pretty much a free for all market where there is little to no regulation. The OTCBB (Bulletin Board) market protects investors with more regulations requiring companies to submit reports on their financials. Both markets offers distinct opportunities for the small investor to make quick profit strikes.
5 - Brokers. It is definitely wise to research around for the best brokers. Discount brokers such as Etrade, Scottrade, and Sogotrade are great places to start for beginning traders. For more advanced traders, brokerages such as Think-or-swim and Interactive Brokers may be better suited for your style of trading.
6 – Basic Chart Patterns. Know your chart patterns. There are tons of traders out there that work just off the various chart patterns. An example of chart pattern is an Ascending Triangle. Ascending triangle patterns emerge when the penny stock being charted is in the process of increasing its daily low trading price while the daily high remains static. The existence of an ascending triangle pattern most often signifies a positive trend regarding the price per share of the penny stock you are analyzing. However, it is important to note that there are exceptions to this rule. There are many, many chart patterns that can help you with your trading and buy and sell indicators that will help you determine better when to trade.
7 - Double Top and Double Bottom Patterns. Two of the more easily recognizable patterns of penny stock trading. A double top pattern aptly reflects its name. It occurs when a penny stock reaches a given high twice but falls off it each time. This creates a pattern within the chart of two "humps" both leading downward after the peak. Recognition of double tops can be mastered by even novice stock technicians, and they serve to send a powerful signal.
A double bottom is the opposite of a double top. On a chart it most often appears to resemble the letter "W." There are two valleys each forming a bottom with subsequent price recovery. It is important to analyze share volume within the context of a double bottom pattern. Ideally, one sees higher daily volumes during the upswing legs and opposed to the down trend lines.
8 - Gaps. Sometimes a stock will gap up or down at the open from the previous day’s close. You should never place a market order outside of market hours or you might get your order filled on a gap up or gap down at the open. Better to place Limit orders to ensure you get your order filled at the price you want. .
9 - Limit Orders. As mentioned in the previous tip on Gaps, you should always use limit orders when you place a trade to ensure you get your order filled at the price you desire. If you place market orders market makers can execute your trades at undesirable prices and this is especially true at prices at the open if the stock’s price gaps up or down. Limit orders eliminate surprises in placing orders.
10 – Profit. If you have a solid profit it is wise to take money off the table in many cases. Penny stocks can move up or down very quickly so never be afraid to lock in profits. Always keep your risk exposure as low as possible. subscribe to OTCPicks.com’s newsletter and we will provide you with many opportunities to make double digit gains with our daily and weekly new trading ideas.
It’s Easy - While the stock market is indeed not too difficult for those who apply themselves and get the necessary knowledge, it is by no means for those people not willing to take the time needed to learn the rules (written and unwritten) of the stock market. This can take a lot of time. Also, experience is needed in studying trends and learning when to buy and sell to make the most profit. While it’s not overly difficult, it’s by no means “easy money.”
It’s Too Complicated - On the other hand, there are those who say the stock market is too complex and complicated to be a steady investment in the long term. While that may be true for those not willing to commit the time and energy needed to become familiar with the stock market and the way it works, it’s not true for everyone. In fact, many people have been able to teach themselves - or learn from others - how to expertly maneuver the stock market for a profit.
It’s Elitist - While this may have been true at one time - especially when it comes to women and minorities - today, the stock market is as fair as any other industry in America. That is to say that it’s not elitist at all and offers many different types of people the opportunity to make money.
It’s Tanking / Recovering - If you study the stock market for any length of time, you are going to see that there are periods of growth and periods of decline. This is the way the market works. Worrying too much that the trends are going to keep going one way is pretty much useless. The longer the market moves in one direction - a bull or bear market - the higher the chance that it’s going to switch around and head in the other direction. This has been shown time and time again since the market has been recorded accurately and studied over long periods of time.
You Need Millions - While it would be nice, of course, to have millions of US dollars at your disposal to invest in the stock market, you do not need this much money. Of course, you want to make sure that you’re not spending your rent money to invest in stocks for short term gains, but in general most people with a few thousand dollars or more may be in a good spot to invest some of that money in the stock market.
More Risks, More Rewards - While this is certainly true in some cases, it’s not a hard and fast rule by any means. Some amateur investors take huge, unnecessary risks thinking this is the best way to big riches. In most cases, it ends up being a one way ticket to losing everything on the stock market. The wise investor will occasionally take risks, but there should always be something more steady in play to balance out any risks you do take on the market.
What Goes Up Must Come Down - The laws of physics do not apply to the stock market. This is a very important lesson. All stocks that go up will not come back down - slowly or quickly. In some cases, stocks will rise and stay there for a long, long time. There are no guarantees in the stock market - especially when it comes to how high a stock can rise without falling.
Falling Stocks Will Rise After 52 Weeks - This may happen in some cases - or maybe even sooner - but nothing is guaranteed in the stock market. So, just because a stock has been going down steadily over the course of a year does not mean it will suddenly rebound and come back. This is a common way for many people to lose money on a stock that’s not going to make a comeback anytime soon. Generally, investors view a stock on its fundamentals and future prospects. If the company is not fundamentally sound it may never rebound.
A Little Knowledge Goes a Long Way - In fact, someone with just a little knowledge trying to invest in the stock market may find that a little knowledge is in fact dangerous when it comes to trading on the modern market. With a global economy and many other factors at play, if you don’t know all the rules - written and unwritten - you’re going to want to make sure you know as much as possible so that you can decrease the chances of losing money. Do your homework on companies. Read their financial reports and press releases and understand the markets they play in so you can better understand their prospects for growth and the stock’s price appreciation potential.
There are other myths surrounding the stock market, but these should be enough to get you thinking about whether or not everything you hear about investing in the stock market is true or not. With so much information available these days, it’s more important than ever to have a gatekeeper or editor of sorts to make sure you’re only getting the very best information available. If you decide to trade stocks, get an online brokerage account that gives you access to research data and company information so you can always do your homework before you invest.
The truth is that the stock market is a great way to make money in the short term and the long term. If you know what you are doing, you can make quite a return with your money. Avoiding the myths of the stock market is one important way to make sure you do the best that you can do.
Most fans of technical analysis of penny stock will tell you that learning about momentum is one of the basic tasks of a tetechnical integrators, and the stochastics oscillator
is one of the most popular indicators for doing exactly that.
Originally developed by Dr. George Lane in the 1950s, this indicator
seeks to predict buy and sell signals by comparing a stock’s closing
price to its range of prices over a given number of time periods.
The FormulaIn simple terms, stochastics look at the closing price as a percentage of the high-low range over the number of periods. The basic formula is:
%K=100((Recent Close – L)/(H-L))
The H and L represent the highest and lowest close over a certain number of time periods (n), typically 14. The indicator takes a 3 period moving average of this %K to get %D, which is then plotted.
Fast and Slow Stochastics
In this case, %K is the raw data, and %D is a short moving average of that, so the lines see a lot of action and react quickly to the market. This is a fast stochastic, and many investors prefer smoothing out this action to avoid false signals.
It is common for traders to use slow stochastics, in which %K(slow) is a 3 day moving average of the raw %K(fast), and then %D(slow) is a 3 day moving average of %K(slow). Note that in slow stochastics, %K is actually the same as what %D(fast) is and %D(slow) is actually a moving average of a moving average.
Using Stochastics as Indicators
Since stochastics are a percentage of the high-low range, the value will always be between 0 and 100. The first use of the stochastic oscillator looks at this percentage to indicate whether a penny stock is overbought or oversold. When stochastic lines are over 80, the stock is overbought and it is a bearish signal, while stochastics under 20 are oversold. Another method is to wait for the stochastic line to either cross down below the 80 threshold before selling and waiting for it to cross over the 20 mark to buy.
Another way to use stochastics as indicators is to look for crossovers between %K and %D, since %K is faster moving and can signal a trend when compared with a slower %D line. When %K crosses from above to below %D, it hints at an upcoming sell off, and %K crosses from below to above %D signal a bullish trend and are a buy signal.
The third way to use stochastics as indicators is to look for divergences between the stochastic lines and the stock price chart. This is done by looking at trends in the two graph’s resistance and support lines, which connect the highs of the peaks and the lows of the valleys respectively. For example, you might see the stock chart have a flat resistance line which looks like the highs will maintain, but the resistance line of the stochastics could be descending. This would act as an early warning of a sell off when things look otherwise bullish on the price chart.
Like all indicators, false signals are possible and several types of indicators as well as date ranges should be combined to get a stronger and stronger sense of market conditions. With that said, stochastics offer an interesting look at where a stock is trading in relation to its recent range and can be very useful indicators when trading penny stocks.
Stock Market Order Types |
Any time you are dealing with assets that see as much movement as penny stocks,
it is important to use all possible market order types at your disposal
to minimize risk. Unless a trader plans on being in front of their
computer or on the phone with their broker all day, it is almost
impossible to keep track of the rapid pace of penny stock changes. Even
the most experienced and knowledgeable investors cannot say for sure
which direction a stock will move in, so various order types are used to
take advantage of and protect against unexpected turns in the market.
This type
of order has the broker enter or exit a position at a price you
specify. The deal will only happen if that price can be attained. Limit
orders let you know in advance the exact number you will buy or sell at,
but brokers often charge higher fees than a standard trade so that can
affect your bottom line.
Market Orders These are the standard order that buys or sells the stock right then and there, at whatever the current price is. It is not guaranteed that you will get the price you just saw online or on television, but typically it will be close to that. These orders also typically carry the least amount of fees and transaction costs.
Stop Loss Orders
Designed to protect traders from drastic plunges, stop losses set a point below the current price that, if hit, will trigger an order to sell the position. If the stock increases, the stop loss does not come into play and you maintain your position.
Trailing Stop Orders
Similar to a stop loss, but sets the trigger in terms of percentage rather than a price point. This means these orders can be used to protect gains, because if the stock has a great upswing and subsequently falls by the percentage set in the order, a sale will be triggered and the gain will be realized.
Short Sell Order
These are bets that a stock will go down in price. With short orders, the trader is actually selling the stock and agreeing to buy the shares at a later date. If the price does in fact go down, the gain is the difference between the initial sale and the price when the trader buys back the shares to cover the trade. With penny stocks it can be difficult to short because the broker often lacks enough shares to lend traders in order to make the initial short sale. Many brokers also restrict short selling to stocks above a certain price, which can eliminate penny stocks.
When putting together a trading strategy, it is often the case that you must plan around the tools you can use. Stock market order types are a large part of your tools and when used correctly, can enable traders to let their winners run and cut losers short. It is important to know all restrictions and availabilities of your particular broker or platform in order to know exactly what can and cannot be done in any situation that arises.
Penny Stock Technical Indicators |
It
should be standard to check out a penny stock’s financials to ensure it
is a viable company, but with the volatility of penny stocks,
financials are not necessarily a good predictor of price action. This is
where technical indicators come in. Technical indicators rely solely on
information from the stocks price charts and trends without regarding
the underlying company in order to predict the price of the stock. There
are some major technical indicators to know that can be used alone or
together to confirm or deny a trend you might see forming in a stock’s
price.
MACD (Moving Average Convergence-Divergence)Moving averages plot the average of a past number of days as time goes on, and MACD typically charts the difference between the value of a 12 and 26 day exponential moving average. This difference chart then has a 9 day moving average, or “signal” line, added on top of it, and the way they cross each other signals buy or sell opportunities. When the MACD crosses below the signal line it is a bearish sell signal, and when it crosses above the signal line, it is a buy signal.
Stochastics
These indicators track momentum by looking at where a stock closed in relation to its recent high-low range. The recent close is expressed as a percentage of the high-low range and this data is used to plot various indicator lines, known as %K and %D. Signals can be obtained in several ways, including by %K-%D crossovers, stochastic lines going outside the 20-80% threshold, or divergences between stochastics and the stock price chart.
Bollinger Bands
These “bands” are lines plotted two standard deviations above and below a simple moving average for a stock. Since standard deviations reflect recent volatility, the bands will move closer together towards the moving average when there is less volatility and farther away when there is move price action. Traders look for the price chart to move towards these bands as bullish or bearish signals. If the price moves towards the upper band, it indicates the stock is overbought and due for a drop, and price movement towards the lower band reflects the stock being oversold and ripe to buy.
RSI (Relative Strength Index)
This indicator looks at momentum of a stock based on the average of its gains in positive closes divided by the average amount of its losses on down days over a set number of days. This comparison of what amount it goes up by to the amount it normally goes down by yields an index of 1 to 100. If the index nears 70 or more it is a sign that the security could be overbought and ready to turn down. When the index goes towards 30, it is a bullish indicator that the stock could be undervalued.
Technical indicators are more useful with shorter term data and holding periods, as is typically the case with penny stocks. While it is important to get as much fundamental company information as possible, traders are dealing more in short term trends than year over year growth. Gathering as much knowledge and practice with technical indicators as possible sharpens the process of spotting trends and in the end, creates better traders.
Why You Should Trade Penny Stocks |
Anyone
considering a start in penny stocks should fully understand the allures
and challenges of trading penny stocks. A complete grasp of the
benefits and risks of these instruments allows traders to begin with the
right mindset, and that is often the difference between breaking even
and scoring big with penny stocks.
To
get an understanding of whether this type of investing is right for
you, there are a few things to look at. First is the nature of penny
stocks and what it means to return on investment. Those factors have
huge implications on the reward potential for these investments, as well
as the risk. Lastly, it is important to know the level of intensity and
excitement that comes with penny stocks compared to investing in
traditional markets.
The Attraction of Penny StocksThe most attractive thing about penny stocks is the basic math involved. When you are dealing with stocks under $5, almost any price swing have a sizeable impact on your overall return. Consider the difference between a $1 stock going up 50 cents and the same gain for a blue chip $100 stock. In terms of percentage, you would make half of your investment on that one move for the penny stock, but only a tiny gain on the blue chip.
The companies behind penny stocks are usually small start-ups and it is important you conduct your own due diligence and research them before investing. Look for businesses in industries you understand, where you will be able to predict what a promising business model looks like. Also, look for a company backed by a reputable management team and with promising early sales numbers. Any information that points toward the company being a seed of something larger is valuable to investors looking at penny stocks. This is how many of the biggest corporations we hear about today got started.
Huge Reward Upside
The potential payoff of penny stocks is immense. When you consider that businesses like Microsoft (MSFT) started as penny stocks trading around $2, you start to understand that the upside is almost unlimited. A 10, 100, or even 1,000 times return on investment is in the realm of possibility. This is not to say every small company will become a giant multinational corporation, but that is in the ballpark you are dealing with.
It is important to remember, however, that there are considerable risks involved with penny stocks as well. Small dips in price can cut into a large percentage of your investment.
The Excitement of Penny Stocks
Investors that appreciate the risks and rewards of penny stocks are able to go in with the right mindset. They do not count on penny stocks to be a sure thing, but have some money they are willing to risk with a promising company for the chance to see a huge return and be part of the next big thing. It is far more exciting than watching the big board, blue chip stocks, because you can look up at price changes and know that every 5 or 10-cent jump can be making a fortune for someone, somewhere. The question is will it be you?
In the coming weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know. Bookmark us or subscribe to our penny stock alerts today.
What Makes A Good Penny Stock? |
In
many ways choosing good penny stocks is a more complex skill than
working with large cap stocks on the big exchanges. There is often
limited information to work with and there can be uncertainty with
certain companies. However, there are certain things that successful
traders have learned to look for in a solid penny stock, and those
include liquidity, press releases, technical indicators, and other chart
techniques.
Subscribe To Our Exclusive Penny Stock Alert Service
LiquidityOne issue with the penny stock market is that liquidity is often a challenge. Since there is no formal exchange to trade on, it is difficult to know for sure that there will be a buyer or seller when you see an opportunity to take a position. Check penny stock communities online, talk to other traders, ask your broker or several brokers if there is any buzz about the particular stock. These sources will give you an idea of whether there has been any significant volume of trading for the stock that is likely to continue. Keep in mind that it will often not be the case with these small cap stocks, but when you find a relatively liquid one it is certainly a good sign.
Positive Press Releases
Since the information regarding companies behind penny stocks is limited compared to index listed companies, the press releases a company puts out are often a key information source and can swing the price of a stock. Look for patterns of positive events in the business development of the company through these press releases, such as growing sales, development of new products, possible acquisition news, and more. These press releases will often coincide with a significant upswing in the stock’s price.
Technical Indicators
There is a vast array of technical indicators that can be used to analyze the direction a stock is trending in. Learn the basics of moving averages and their crosses, and build from there. The more technical indicators you learn, the more angles you have to test against each other when analyzing a potential buy. Some other popular technicals include stochastic oscillators, MACD, RSI, and Bollinger Bands. Technical indicators are often used in combination to confirm a good stock pick once a buy signal is triggered.
Charts
In addition to technical indicators, there are many positives you can determine from the price chart itself, without further manipulation of the data. Learn common patterns to pick out and get an idea of what a chart will do. A predictable rolling pattern will often develop, and triangle chart patterns can tell you whether sellers are overpowering buyers or vice versa. When you see a chart pointing towards bullish price action, you know you are looking at a potential buy.
Success in the penny stock market is determined based on such small price moves that it is important for traders to use a multifaceted approach to their analysis. The better you get at using these tools, the earlier you will be able to spot trends to take advantage of, and your bottom line will be better off for it.
In the comping weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know.
Moving Averages and Penny Stocks
|
A
fundamental skill of trading penny stocks successfully is picking up on
trends amidst day to day price action, and moving averages are a vital
tool in this task. When used correctly, moving averages smooth out
charts and clarify what a stock is doing over time. Additionally, moving
averages act as an indicator for good buy and sell opportunities.
First of
all, it is important to understand what a moving average is and how it
is calculated. The data comes from an average of a certain number of
prior days’ prices, and that set of days shifts forward with time. This
means that a fifty day moving average, for instance, averages days 1-50
for the first plot point, then days 2-51 for the second, and on like
that for the duration of the chart. Compared to a daily price chart, the
moving average is much smoother, only showing trends and not all the
peaks and valleys of daily volatility. The longer the period of days in the average, the smoother the chart will be. However, shorter moving averages more accurately reflect the short term trends. Some typical moving averages are 15, 20, 30, 50, 100, and 200 days.
Moving Averages as Trade Indicators
To use moving averages as signals to enter or exit a position, chart a moving average on the same graph as either a shorter moving average or with the regular stock price chart. Look for the stock price or shorter term moving average to cross the line of the longer moving average from lower to higher. This is a buy signal, also known as a golden cross. The opposite, when the stock or shorter moving average dips below the longer one, it is a sell indicator or a dead cross.
Note that this strategy should only be used when the moving average is clearly trending and not when it is flat. Crosses of a flat moving average are not accurate and should not be relied on. To be extra cautious, look for a cross to hold for a few days before making the trade.
Types of Moving Averages
A basic moving average that calculates all days in the date range in the same is known as a simple moving average, while an exponential moving average or EMA weighs the more recent days in the range more heavily.
The extra weight on recent days in EMAs can work to reflect developing trends faster than SMAs. However, EMAs are more susceptible to respond to random noise in the short term and indicate a trend that is not actually developing. Traders often use both types together to double check trends they believe are developing.
The proper type and date range to use will depend on the trading strategy and industry involved. Penny stock traders have been successful with many systems, but the basics of moving averages are a constant. With practice using them, investors become better and better at noticing trades, and this only helps their bottom line.
In the comping weeks OTCPicks.com will continue in-depth coverage of all the indicators a penny stock investor must know. Bookmark us or subscribe to our penny stock alerts today.
Penny stock investing is by far one of the most popular forms of trading. Don't believe me? Google penny stocks
and blue chip investing and see which has the largest number of search
results. With that popularity comes high risk and reward. Like
everything in life you do not want to just dive into unknown. Here at
OTCPicks.com we strive to have the best members around and that means
one thing: education. Here are a few tips we have come up with along our
long investing career that can turn you into a pro:
1 - MANAGE YOUR RISK Recent events have shown that effective risk management is a trick that not even the largest institutional traders have mastered. The irrational fear of having a losing trade is a phobia that afflicts many penny stock traders. Realistic traders understand that not every trade will be a winner. The key trick is to recognize your losers quickly and cut those stocks loose. Seasoned penny stock traders employ stop-loss systems to minimize their overall risk.
2 - WATCH THE MARKET MAKER
Penny stock traders notoriously spin conspiracy theories relating to the activities of market makers. Many of these theories border on the insane, however, there is a kernel of truth to this line of thinking. Smart penny stock traders watch the price action for telltale signs that the market maker is poised to take the stock one way or the other. The ability to decipher these situations is a trick that can potentially yield obscene profits.
3 - DON'T BE LONG ONLY
The vast majority of penny stock players are long only traders. This means that they only buy penny stocks, and they never short them. Some mistakenly think shorting stocks is unpatriotic, or even evil. There are situations that dictate going long a stock, and there are situations that portend a stock's decline. Only playing one side of the equation greatly limits your opportunities. Taking advantage of short opportunities is an important trick for a good penny stock trader to have within their routine.
4 - LISTEN TO THE CONFERENCE CALLS
The vast majority of losing penny stock traders do not follow the news and filings of the stocks they trade. Decent penny stock traders read the transcripts of company conference calls. Superior traders use the trick of finding the archived conference call and actually listening to it as opposed to relying upon the transcript. Hearing the CEO’s and other top executives’ voices often yields valuable insights. Actually listening to conference calls is time consuming, but this trick often can serve to either prevent a loss or maximize a gain.
5 - BE A CONTRARIAN
Many penny stock traders go with the flow and follow the herd into crowded trades. Seeing that the majority of penny stock traders are losers, logic dictates that one would want to go against the crowd. Learning to be contrarian is a penny stock trick that puts you in the minority -- which most often represents the smart side of the trade. Learn to identify the signals of a crowded trade. These become evident when all of the so called pundits are touting a given stock and everyone thinks it is a "no-lose proposition.” Once you have identified this situation, go against the crowd.
6 - USE THE RIGHT BROKER
When trading penny stocks, a good trick is to learn how not to be tricked by your broker. Fees and commissions charged by brokers can be complex and confusing. Some brokers charge an outrageous per-share trading fee, which translates to huge commissions for penny stock traders. Many pay these commissions unaware that less expensive alternatives exist. Check out this penny stock broker list at OTCPicks.com.
7 - BE BEARISH UPON REVERSE SPLITS
Many stocks in the penny stock world attempt the neat trick of a reverse split. A reverse split is the same type event as a regular stock split, however, with a reverse split the amount of your shares decreases. Companies often use a reverse split as a last ditch effort to prop up share price or to reduce a bloated share count. Although the concept of "always" does not exist in the trading world, one can come quite close to saying that stocks "always" decline immediately subsequent to a reverse split. If you own a stock that announces a reverse split, you should sell it quickly. If possible, try to short stocks right after a reverse split occurs.
8 - NEVER AVERAGE DOWN
Penny stock traders notoriously attempt to reduce their basis in a given position by averaging down. Avoiding this temptation is a required trick for penny stock trading success. Smart traders jettison losing positions quickly. Continuing to hold, and adding to, a losing penny stock position is a surefire recipe for failure. Smart traders bail on their losses and let their winners run.
9 - DON'T BE A PIG
While it is smart to let your winners run, it is piggish not to take chips off the table during a positive run. The most frustrating occurrence is what traders call a "round trip" trade. This is when you watch one of your penny stocks rocket upward without selling only to see it fall back down to where it came from -- yielding you zero profits. Sell into runs up and pick a reasonable target where you will exit your position enjoying the fruits of the trade as opposed to watching them disappear.
10 - DON'T BELIEVE THE HYPE
The management of a penny stock company is prone to put out enough press releases to wallpaper a house. Some smart traders have hypothesized that there is an inverse relationship between stock performance and the average number of press releases put out weekly by a company. The trick is not to be swept up by the hype and dive into a stock because the CEO says in a press release that he believes good things might happen in the future.
Those are just a few of the tricks or strategies employed by the top penny stock traders. Be sure to follow Penny Trader and OTCPicks.com as we continue to uncover the latest techniques and strategies to ensure your trading success.
1 - Etrade Easily
one of the most recognizable discount brokers in the world, Etrade
offers a wealth of options for any kind of investor. With a low
commission structure it is easy to recommend to the novice investor.
2 - TD Ameritrade
Another discount broker, TD Ameritrade offers a wealth of tools to both the novice and advanced trader. They also offer a flat-rate commission structure which is beneficial to penny stock investors.
3 - Thinkorswim
Easily one of the highest rated brokers out there, Thinkorswim also offers up the ability to short penny stocks. Why make money on just the upswing when you can capitalize on both positive and negative trends.
4 - Interactive Brokers
Like Thinkorswim, Interactive Brokers offers the ability to short penny stocks. However it should be noted that Interactive Brokers user interface is one of the hardest to learn. Novice traders should be aware of this, while advanced traders may like the added feature set.
5 - Charles Schwab
Charles Schwab is one the oldest standard bearers of the investment community. While it lacks the panache of some of its competitors, Schwab still ranks in the top tier of all brokers. Plus you get the added bonus of having access to some of their premier investing products.
6 - Sogotrade
SogoTrade is an online discount stock market brokerage firm based in New York City that deals in shares of stock and Exchange-Traded Funds (ETF). This is one of the newer discount brokers and is used quite extensively by penny stock investors.
7 - Zecco
Zecco is another one of the newer discount brokerages but they have a special offer of free trades. The catch is you have to have a balance with them over 25K. So for most beginning traders this isn't possible, but their commission structure is competitive with the rest of the brokerage field.
8 - TradeKing
Another high rated broker TradeKing is a perennial winner in customer service surveys. Offering a robust platform and a competitive commission structure, it may be a good place to start in the world of penny stocks.
9 - SpeedTrader
The name says it all. Speed. Fast executions are the name of the game at this broker. If you are looking for an all encompassing feature set this is not the place for you. If you are a trader that has all that covered and just want fast executions then this is the broker for you.
10 - Scottsdale Capital
Though not know as a flashy online broker, Scottsdale is one of the old guards - doing what they do and doing it well. You won't see a talking baby but you will get a solid experience from this broker.
While not a comprehensive list, this will certainly get your research started into finding he broker that fits your style and preferences. Whether that is the flashiness of etrade or the understated effectiveness of Schwab there is a broker out there for you. Make sure you are signed up for exclusive penny stock alert service so you can give your newfound broker a try.
2 - TD Ameritrade
Another discount broker, TD Ameritrade offers a wealth of tools to both the novice and advanced trader. They also offer a flat-rate commission structure which is beneficial to penny stock investors.
3 - Thinkorswim
Easily one of the highest rated brokers out there, Thinkorswim also offers up the ability to short penny stocks. Why make money on just the upswing when you can capitalize on both positive and negative trends.
4 - Interactive Brokers
Like Thinkorswim, Interactive Brokers offers the ability to short penny stocks. However it should be noted that Interactive Brokers user interface is one of the hardest to learn. Novice traders should be aware of this, while advanced traders may like the added feature set.
5 - Charles Schwab
Charles Schwab is one the oldest standard bearers of the investment community. While it lacks the panache of some of its competitors, Schwab still ranks in the top tier of all brokers. Plus you get the added bonus of having access to some of their premier investing products.
6 - Sogotrade
SogoTrade is an online discount stock market brokerage firm based in New York City that deals in shares of stock and Exchange-Traded Funds (ETF). This is one of the newer discount brokers and is used quite extensively by penny stock investors.
7 - Zecco
Zecco is another one of the newer discount brokerages but they have a special offer of free trades. The catch is you have to have a balance with them over 25K. So for most beginning traders this isn't possible, but their commission structure is competitive with the rest of the brokerage field.
8 - TradeKing
Another high rated broker TradeKing is a perennial winner in customer service surveys. Offering a robust platform and a competitive commission structure, it may be a good place to start in the world of penny stocks.
9 - SpeedTrader
The name says it all. Speed. Fast executions are the name of the game at this broker. If you are looking for an all encompassing feature set this is not the place for you. If you are a trader that has all that covered and just want fast executions then this is the broker for you.
10 - Scottsdale Capital
Though not know as a flashy online broker, Scottsdale is one of the old guards - doing what they do and doing it well. You won't see a talking baby but you will get a solid experience from this broker.
While not a comprehensive list, this will certainly get your research started into finding he broker that fits your style and preferences. Whether that is the flashiness of etrade or the understated effectiveness of Schwab there is a broker out there for you. Make sure you are signed up for exclusive penny stock alert service so you can give your newfound broker a try.
Did
you miss out on the incredible Dow rebound the past few years?
Wondering how you can make those crazy returns you always read about?
Here at OTCPicks.com we always strive to present the best information
for both beginner and advanced investors. If you are ready to take your
penny stock investing to the next level then take a look at our 10 quick
tips:
1 – Learn About Penny Stock Trading
- You need to know what you are dealing with - just what is a penny
stock? Here at OTCPicks.com we offer a clear guide explaining the
definition of penny stocks. Check out the guide here. 2 - Risk. Investors have to understand risk. While it is true that you can make outrageous returns on your investments, the opposite is also true. Be sure to set up stop losses to limit any overexposure. subscribe to our newsletter and get access to our upcoming in-depth guide explaining stop losses.
3 - Volume. Stocks with good volume are easier to get in and out of. Always look for building volume when you prepare to enter into a new position. Good buying volume can signal aggressive accumulation and can foretell a move upward.
4 - Markets. Know what market your stock is traded on. OTC markets or Pink Sheets are pretty much a free for all market where there is little to no regulation. The OTCBB (Bulletin Board) market protects investors with more regulations requiring companies to submit reports on their financials. Both markets offers distinct opportunities for the small investor to make quick profit strikes.
5 - Brokers. It is definitely wise to research around for the best brokers. Discount brokers such as Etrade, Scottrade, and Sogotrade are great places to start for beginning traders. For more advanced traders, brokerages such as Think-or-swim and Interactive Brokers may be better suited for your style of trading.
6 – Basic Chart Patterns. Know your chart patterns. There are tons of traders out there that work just off the various chart patterns. An example of chart pattern is an Ascending Triangle. Ascending triangle patterns emerge when the penny stock being charted is in the process of increasing its daily low trading price while the daily high remains static. The existence of an ascending triangle pattern most often signifies a positive trend regarding the price per share of the penny stock you are analyzing. However, it is important to note that there are exceptions to this rule. There are many, many chart patterns that can help you with your trading and buy and sell indicators that will help you determine better when to trade.
7 - Double Top and Double Bottom Patterns. Two of the more easily recognizable patterns of penny stock trading. A double top pattern aptly reflects its name. It occurs when a penny stock reaches a given high twice but falls off it each time. This creates a pattern within the chart of two "humps" both leading downward after the peak. Recognition of double tops can be mastered by even novice stock technicians, and they serve to send a powerful signal.
A double bottom is the opposite of a double top. On a chart it most often appears to resemble the letter "W." There are two valleys each forming a bottom with subsequent price recovery. It is important to analyze share volume within the context of a double bottom pattern. Ideally, one sees higher daily volumes during the upswing legs and opposed to the down trend lines.
8 - Gaps. Sometimes a stock will gap up or down at the open from the previous day’s close. You should never place a market order outside of market hours or you might get your order filled on a gap up or gap down at the open. Better to place Limit orders to ensure you get your order filled at the price you want. .
9 - Limit Orders. As mentioned in the previous tip on Gaps, you should always use limit orders when you place a trade to ensure you get your order filled at the price you desire. If you place market orders market makers can execute your trades at undesirable prices and this is especially true at prices at the open if the stock’s price gaps up or down. Limit orders eliminate surprises in placing orders.
10 – Profit. If you have a solid profit it is wise to take money off the table in many cases. Penny stocks can move up or down very quickly so never be afraid to lock in profits. Always keep your risk exposure as low as possible. subscribe to OTCPicks.com’s newsletter and we will provide you with many opportunities to make double digit gains with our daily and weekly new trading ideas.
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