Posts Tagged ‘technical analysis’
Are Penny Stock Investments Safe?
Written by troy on Wednesday, March 03, 2010 | No Comments
Categories: Uncategorized Tags: entry strategies, exit strategies, fundamental analysis, Penny Stock Investments, Penny Stock Trading, technical analysis, Trade Penny Stocks
The question arises all the time as to whether penny stock investments are safe. Before answering that question let me clarify that all investing has inherent risk. Yes, you risk losing money whenever you invest. This is true whether you invest in bonds, mutual funds, commodities, blue chip stocks or penny stocks. So the answer to the question is that no for of investing is 100% safe.
So where do penny stock investments fall in the order of safety? No one is trying to be deceptive. Penny stock investments can be risky. However, if you are going to trade in penny stocks then you need to realize that they are not long term holds. I would never recommend buying a penny stock and holding it for five years. The fundamentals of these stocks are so poor that it is difficult to even make an informed decision about the prospects of the company. I would have no idea where they would be in five years. But I may be able to predict their near term trading pattern over the next two weeks.
Penny stock investments are really not investments at all; they are trading vehicles. The point in trade penny stocks is to move in and out of them to take advantage of the large swings that they often present us with.
If you put in place a very disciplined and strict trading program you can limit much of the risk involved in penny stock trading. If you narrow down the stocks that you will trade to those that provide you the best liquidity and near term visibility of price movement you will go a long way to limiting your risk. Trade penny stocks who have had recent good news or who have already reported earnings. This way there is less of a likelihood of a downside surprise.
Once you have narrowed your trading list down then you need to trade on the basis of some very defined entry strategies and exit strategies. Know why you will get into a stock and why you will get out. I do not recommend that you ever make those decisions based on fundamental analysis. You are a trader and should make your trading decisions on the basis of technical analysis.
Determine what triggers will get you into a position and which trading signals will get you out. The same principles of technical analysis apply to all stocks regardless of their price. Become a student of technical analysis and apply what you learn to your trading of penny stock investments.
Fundamental Research vs. Technical Analysis
Written by troy on Friday, December 26, 2008 | No Comments
Categories: Uncategorized Tags: fundamental research, Penny Stock Trading, penny stocks, penny stocks trading, technical analysis
What is more important when trading penny stocks: fundamental research or technical analysis? I use technical analysis primarily and only use fundamental research to narrow down a choice of candidates that I have been following.
Remember what we are trading. We are trading penny stocks. That being the case, we will not find too many candidates that will stand out to us using fundamental analysis. The reason that the stock is trading at less than $5 is because there is not something too promising with the fundamentals of the company. It may be merely a difficult time that a company is going through but despite how much you research the stock or the marketplace you will not get the real picture.
I have watched a few sites over the years that attempt to apply fundamental research to penny stocks. It is almost humorous. I have been impressed with some of the research that they have put out there. It has been good stuff. Sometimes it has been so good that it almost convinced me to trade the penny stock myself, however, ultimately the stock languishes again. I have seen some of the greatest fundamental research write-ups on companies that are now defunct. And frankly I could care less. I believe fundamental research on penny stocks is a loser’s game. It will not lead you anywhere positive.
I prefer technical analysis. I am talking about breakouts above trendlines, moving averages, moneyflow, relative strength, stochastics, MACD, and the like. I find that techincal analysis is much more beneficial when it comes to penny stocks trading.
Technical analysis is sort of a measure of whether a stock is in favor or out of favor during the particular time frame that you happen to be watching for. It does not give you an indication of where the stock might be going 6 months or one year from now. It lets you know whether the stock is in favor right now. And simply put if it is in favor right now then I want to trade it. If it is out of favor then I want to stay away from it or short it. As an aside, I work in the investment industry and the SEC is beginning to get tougher with short sale rules. As a result of this I would spend most of my time looking to go long in the particular penny stock that you might be trading. I think it may be hard for many brokerage companies to come up with the physical shares of the company to short. The SEC is starting to require that the brokerage company locate the shares.
If technical analysis indicates that a company may be in favor at this time then it becomes a penny stock trading opportunity. I would stay in the trade for as long as the technical indicators are in your favor or exit the trade according to your trading rules that you have set up. When you have exited the trade you can always look to re-enter the same stock for yet another trade or move on to another penny stock to trade.
Below is a chart of BRCD (Brocade Communications) over the last month. Take a brief look at how the stock drops to around $3 and then rises again to at least $3.30 again.
BRCD - Last Month
Three different times in the last month you could have bought near $3.00 and then sold again at $3.30 or higher. And if you will look at the far right of the chart you will see that it is there again. Maybe it could be a buy again. Watch it over the next few days and see what happens. Learn technical analysis and put it to work in your penny stock trading.