It’s important to know how to read penny stock charts if you want to be a day trader. Understanding things like price action, candlestick patterns, volume, moving average lines, vwap, and trendlines makes all the difference in the world towards becoming a successful trader. Knowing the fundamentals of a stock is great, but you need to be able to learn the right areas of where to buy and sell to be profitable.
Table of Contents
How Do You Read Penny Stock Charts?
Knowing how to read penny stock charts effectively is important when day trading. We are huge proponents of always having a chart of the S&P or futures up while trading, so that you can be aware of what’s happening in the overall markets. Penny stocks move with the overall markets. We explain and show you how to use an S&P chart while day trading and its benefits in this video.
Knowing how to read penny stock charts the most important part of trading penny stocks. Penny stock trading is risky so stick to the charts because the charts don’t lie.
The penny stock sector is filled with manipulators and pumpers. Hence the risk in trading them. Penny stocks are also attractive to traders, especially new ones. They’re cheap to buy and promise big rewards.
In this case, reading the charts before placing as trade is really important. You may hear people say the charts don’t matter. That is unequivocally not true. The importance of penny stock charts is in the patterns and the technicals.
A penny stock is defined as any stock $5 and under. Although a lot of people think of them cheaper than that. The penny stock charts of the larger dollar amounts are probably going to be the easiest to read.
Does Technical Analysis Work With Penny Stocks?
- Technical analysis absolutely works with penny stocks. In fact, it’s the best way to trade penny stocks. Fundamental analysis is tricky with penny stocks because they company financials usually aren’t good. Knowing how to read candlestick patterns and technical analysis is the key to success.
The Patterns
Candlesticks group together to form patterns. Patterns give direction, whether continuation for reversal. For instance, someone is telling you to buy XYZ stock because it’s going to the moon but there are clear head and shoulders patterns.
That is known as an F you pattern and for good reason. You’re probably about to lose your money if you take that trade. Patterns are a safe guard against pumpers and manipulators.
Penny stock strategies should include trading patterns. The penny stock charts don’t lie. Whenever someone tells you a stock is going to the moon, look at the charts.
Who wouldn’t want to get on the ground floor of something big and make a ton of money? Everyone would but how realistic is it? Not very.
Technical Analysis
You can use technical analysis to trade penny stock charts in conjunction with candlesticks and patterns. Moving average crossovers can give you buy and sell signals as well as acting as support and resistance.
High Volume
Volume confirms trends, verifies there will be buyers when you want to sell and prevents slippage. Now you’re probably wondering how high is high.
I would say this is a personal preference, but I know some traders won’t trade anything less than a daily volume of 500,000 shares.
Why Penny Stock Charts Matter
Everything else you’ve read up to this point proves why penny stock charts matter. The sector is manipulated and pumped. Never listen to the success story of someone else.
In the penny stock sector there are a lot of success stories of how people became millionaires. That may be true but that is the exception not the norm.
If you get into penny stock trading to get rich quick then you’re probably going to fail. Trading is hard and takes time, practice and stock market training. Penny stock charts are there to be your guide.
If you need more help, take our day trading course.
