A penny stock can make you a lot of money if you know what you’re doing. Countless stories of turning small sums of money into tens of thousand of dollars is what has continued to interest investors of penny stocks. But if a company doesn’t have news and there is no industry hype, many penny stock traders will look at chart patterns for a clue into the directional movement of a stock.
Applying technical analysis to the trading strategy for a penny stock investor could help build a true to form portfolio based on momentum day trades when fundamentals aren’t “there yet.”
Keep in mind that when it comes to penny stocks, technical analysis shouldn’t be the only thing you pay attention to. It’s important to take into consideration everything else that comes with penny stocks including potential manipulation, corporate news, and pertinent industry events.
Good Rules Of Thumb For Penny Stock Charts
However, the greater the trading activity, the better it may be for the technical analysis to “hold true” when compared to other penny stocks that may not trade as frequently or with as much trading volume. There are many different penny stock chart patterns to know and a section of our site breaks some of these down in further detail.
The bottom line and what is important to understand is that technical analysis of penny stocks is best used along with high-quality companies, which are already on the market’s radar with fundamental analysis to back it up.
It’s also important to note that technical analysis does not work when a penny stock has low trading volume.
Technical analysis can be a good tool to spot potential price moves in penny stocks before or after other fundamental aspects are factored in. Because of this, we would presume to not rely exclusively on technical analysis, and even if you do, know that it should be just one of many tools to use during your diligence process.
This is why it is so important to find a way to start by Paper Trading, where you risk no money, as you learn and develop your own approach to penny stock profits!