Posts Tagged ‘Exit Points’
Penny Stock Technical Trading
Written by troy on Friday, June 12, 2009 | No Comments
Categories: Uncategorized Tags: Breakouts, Exit Points, Moving Averages, Relative Strength Indicator, Strength Indicators, Trend Indicators
1. Strength Indicators/Oscillators – are indicators that compare current price action to that of history, showing the relative strength or weakness of a stock. One of the most common of these is the RSI (Relative Strength Indicator). Often shown at the top of a chart, the RSI can indicate overbought and oversold price conditions, providing a tip for traders to buy or sell a stock.
2. Moving Averages – or MA’s for short, are trend indicators generated by averaging historical price levels over a certain period of time. These can be used to identify short term price movements above or below long term price averages, also known as crossovers. Crossovers can indicate possible breakouts, or breakdowns, making them an important tool for a trader. Some crossovers hold more weight than others, such as a “Golden Cross”. With a self explanatory name, a golden cross is identified by a short term MA crossing bullishly through a long term MA. Often used are the 20/50, 50/100, or 50/200. Each number represents the period with which the MA is calculated. The opposite of the Golden Cross is known as the “Death Cross”.
3. Pattern Analysis – is the evaluation of the stock chart to identify price formations, or shapes such as triangles, wedges, the head and shoulders, cup and handle, etc. These formations can indicate potential upward or downward movement in the future. They are generally caused by pure market forces, but the occurrence of one, natural or not, often affects trading and price action. With that said, manipulation can occur in attempt to “draw the chart” and create a favorable movement for someone, or some group of people.
4. Range Analysis – is the use of price range, and opening and closing prices to identify support and resistance levels. These can be very valuable in determining the best buy and sell points, and potential breakout/breakdown levels.
5. Gap Analysis – is done by finding gaps in the daily, weekly, or even intraday charts. A gap is an open spot in the chart caused by an opening price and range that is greater than the previous period’s close. The general consensus is that gaps are usually filled. In the case of penny stocks, they almost always do, unless the company proves real success that sustains the price movement. One can use gaps to determine buy prices, or re-entry targets, knowing that the price is likely to return and fill the gap before moving much higher.
After identifying an attractive stock to trade with technical analysis, the actual buying, selling, and holding of that stock should be augmented using other methods. One should always use Level 2 quotes to refine buying and selling decisions. News and filings should also be monitored to protect your investment from fundamental changes.
Technical Trading Pros:
-There are lots of technical traders out there on stock trading forums and boards that are very helpful identifying technically hot stocks, as well as helping you learn TA.
-Technical moves can be quite strong with penny stocks, often because TA is all there is to judge a penny stock and its price movements.
Technical Trading Cons:
-Pumpers and bashers can make almost any chart look technically positive or negative, luring inexperienced investors into buying, holding, or selling.
-Without attention to fundamentals such as news and filings, an attractive technical trade can be turned upside down in a matter of minutes.
-TA is extremely complex, mathematical, and difficult to comprehend.
By: Dustin Hotaling
About the Author:
TheThirdDimension.net is your one stop site for Penny Stock Investing resources. Tips, tools, strategies and resources; We have it all. Learn how to Trade Penny Stocks at TheThirdDimension.net today!
Implementing A System For Trading Penny Stocks
Written by troy on Saturday, February 21, 2009 | No Comments
Categories: Uncategorized Tags: Exit Points, Penny Stock Trading, penny stocks
The most important of these rules is only trading penny stocks with funds that will not hurt you financially. It cannot be stressed enough that emotion plays a very large part of the decision making process when trading. Emotion is the number one factor that creates losses when trading.
Hardcore veteran daytraders spend years implementing a trading system that removes emotion from the trading process, knowing all too well how emotion can affect the decision making process when deciding entry and exit points when placing trades.
This is why so much emphasis is placed on trading only with money that can be afforded to be lost without causing financial distress. If the the trader only uses expendable capital for trading, it reduces the amount of emotion involved, therefore removing irrational decision making in trading.
There is talk among traders as to how much of your trading capital should be used for each individual trade. Many traders believe that one percent of total trading capital should be used for each individual trade with others saying five percent or more. Usually this is a question that should be answered by the trader himself with five percent of total capital being the maximum amount used for individual trades.
One aspect of trading that many potential traders show little concern for, is developing a trading system that works for them that is designed for their style and risk tolerance. Developing a system can require many hours and days of testing and retesting, but with the proper amount of research and testing, a system can be designed that will make the trader both successful and profitable.
The major reason for success when a trading system is developed, is the fact that the system is entirely mechanical and removes emotion from the equation. Risk management being key when developing a successful trading system.
There are many different charts and indicators that can be used for a trading system but simplicity has always been the hallmark of successful trading systems. Finding two or three indicators along with the chart style of choice is usually all that it is needed.
Overloading a chart with too many indicators will not only confuse the trader, but can also produce conflicting data since all indicators use different calculations and formulas. Simplicity can not be emphasised enough when keeping indicators at a minimum in a trading system.
Penny stock trading is not for people with scared money or little experience in the stock market. Penny stock trading requires experience and knowledge of the small cap markets. Huge gains can be made in penny stocks but more times than not, money is lost by people willing to gamble and not learn to trade the penny stock market.
Greed is a powerful motivator and is a a human emotion. As stated above, emotion has no place in a traders plan for success, Hope and greed have destroyed more brokerage accounts than any downturn in the market. Every year more and more people open online brokerage accounts with hopes of hitting the proverbial home run, only to walk away with empty brokerage accounts and disillusionment.
Developing a trading system that works can only be found by hard and dedicated work by the trader with the discipline to adhere to the rules implemented. Not unlike the airplane pilot who learns to trust his instruments rather than what his head is telling him, in the end possibly saving his life. Just as a successful trading system can save a traders financial life to live another day.
By: Phillip Hatley
About the Author:
Phillip Hatley has been trading penny stocks for 8 years. For more information about trading penny stocks, please visit his blog.