Performing Penny Stock Technical Analysis

In a penny stock, a stock is typically priced under a dollar and is thinly traded, making it challenging to conduct research on it. Penny stocks have fewer reporting requirements and regulatory oversight than stocks listed on the major exchanges. The value of penny stock companies can often be determined by conducting in-depth analysis. Prices often fluctuate by 20 percent or more each day and traders are advised to conduct an analysis before investing in a particular company.

You shouldn’t short penny stocks because of their small market cap and thin trading. Investors who get caught in a short squeeze may find it hard to sell their stocks due to a lack of buyers.

Check the Securities and Exchange Commission’s website to see if the stock has been delisted from a major exchange recently. The most common reason for delisting is a share price below $1. The company is not automatically doomed to bankruptcy, but it would be harder to raise capital and to remain in business if stock sales were used to raise funds.

Examine the company’s most recent financial statements by obtaining a copy of its most recent SEC filing from an online data provider that offers free financial data. Look at the size and type of assets the company possesses, as well as the amount and type of debt. Assess the liquidity of the company in order to ensure it can continue its daily operations.

Important Considerations

Look at the financials and the daily price movements to see how well the board of directors and executives are managing the company. Examine the company’s growth potential and how much money it makes. An upward trend or possible price breakout can be detected in a rising stock price and a minimum daily share volume of 100,000 traded shares.

Be sure the penny stock you’re planning on trading is trending up with at least 100,000 shares traded daily. Be sure that the company hasn’t been delisted recently. If the company’s operations yield profit, and the company has sufficient cash to operate on a daily basis, then you should close out your trade with a nice profit.

Technical analysis has the benefit of allowing you to skip a big chunk of due diligence that you would otherwise perform when vetting stocks for your portfolio. Technical analysis does not require any knowledge of the past performance of the management team, the P/E ratio or debt level of the company. In an increasingly complex world, technical analysis is refreshingly easy!

Listed below, I’ve selected some of the most interesting penny stocks that my team and I have followed recently, based on their technical analysis setups. We hope that these help you through the dog days of summer, and we look forward to seeing you in August.

Brickell Biotech, Inc. (BBI)

In the current context, Brickell Biotech, Inc. (BBI) is looking like a potentially good buy with the group’s moving averages pointing towards a Strong Buy at the moment (and indeed, on June 30, prices had jumped up 8%).  If Brickell Biotech stock begins to slip over July, however, users can consider this signal to have failed, and you might want to reconsider your position.

Importance of technical analysis

In order to invest in penny stocks, you will have to know when to make use of technical analysis (TA). Most investors make their research on the basis of fundamental analysis. They seek out companies with proven management teams, positive news releases, and growing market shares. These fundamentals should be revealed in a good fundamental review. Other investors simply want to predict share prices by analyzing the trading chart and applying TA. These investors are less likely to pay attention to the fundamentals.

When used properly, technical analysis can be very advantageous over a more traditional fundamental-based approach to research. However, technically advanced methods have disadvantages as well, and this should be considered before you begin your trading career.

Many investors prefer to use technical analysis alone without fundamental and abstract analysis, although you can use it as a stand-alone approach. You may use technical analysis with a full fundamental and abstract analysis review. It will give you the most clarity from the research approach.

An important aspect of investing is fundamental analysis, which involves purchasing a great business and hoping to profit as the operations improve over time. As a result, the share price increases over time.  It is much more appropriate to use TA if you are not interested in playing the patience game, but you wish to see price changes much more quickly.

The TA method often reveals pretty accurate buy and sell points by looking at trading volume, chart patterns, and price direction. The chart shows how a drop in volume, shares approaching a resistance level, or an upward trend, can signal when it’s time to buy a penny stock.

Every minute that you hold stocks, your dollars are exposed to events happening in the market. If you use short-term trading based on technical analysis, you should typically keep fewer dollars sitting “out in the open” at any given time. However, keep in mind that you still face risk even though your exposure is restricted.

Final words

In this article, price levels have been assumed and are not recommendations for buying or investing. Must ensure that your trade decisions should be made on the basis of your own expert analysis and risk management skills for successful trade!