Penny stocks and trend trading, will that work? The problem for small cap stocks is the lack of continuous interest. Under such circumstances clear trends are rare. The reason is that money pours in with single thrusts and the gaps between them may be filled with terrific pullbacks.
This trading pattern is not even inviting for the swing trader, who is waiting for the resumption of the trend. Trading small cap stocks is stochastics, not technical analysis.
Taking now a chart and pinpointing the start and the end of a trend is only hindsight paper trading. Of course, there are such paper trade trends. They occur in all markets. But they are less likely to be foreseen than with bigger stocks. Intraday trading of trends will be even harder with microcap stocks.
But there is a fine solution for the trend trader in the small cap markets. Breakout trading will work.
Breakouts for small cap stocks look different than for range bound large stocks. It not so much the price that has to break some chart formation. Instead, it is the trading volume that soars suddenly and with it the price will move. But the price has not to break some clearly identifiable technical barrier and the outcome will not be a smooth trend.
The second criterion for a good penny stock trade is the potential. The smaller a company is the harder it gets to find out something about it. Trading is probabilistic. Accept that and you have the best fundamental indicator for penny stock trading. It is simply a current price far lower than historical highs that indicates future potential.
We just have to put both criterions together and arrive at the volume spike and fallen angel watching penny stock picker.
Watch for a:
- fallen price and
- exploding volume.
You could even outsource the watching. Actually we are looking for more than exactly this trading pattern. We are scanning the markets for this and other patterns of exploding success. Sounds good right?
Will our stock signal service deliver a winning rate of far more than fifty percent or do we have access to hidden information? Do you have here a stock prophet or someone with a holy grail trading system?
The answer to all questions is no. But you can expect that you will get some absolute outliers recommended over time. A few monster trades will make the bulk of the money for you.