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Profit From Penny Stocks By Playing Breakouts

By Edited Nov 13, 2013 0 0

If you are looking to make money while trading the stock market then penny stocks might be just what you are looking for. Penny stocks have the ability to make large moves in a very short time. Often you can see gains of 20%, 30%, 40% or more in a single day. However, penny stocks can often languish and lose value day after day. So how can consistently find stocks that will make money for you rather than slowly eat away your capital. One of the best ways is to find stocks that are breaking out of their current range.

Penny stocks will often find themselves trading in a sideways range. Then don't necessarily have to be in this range for a long time. I usually look for stocks that are making a new two week high. When stocks break out of a trading range or when they are making a new high for the first time in a couple of weeks they have a tendency to continue on in the same direction. Slowly traders begin to find out about the move and begin to slowly pile into the stock causing it to move higher. If you begin to scan penny stock charts you will begin to see this same chart pattern over and over again.

When you find these patterns you should not hesitate to take profit after a satisfactory return on your money. Penny stocks are not investments; they are good trading stocks. Don't expect that the breakout that you just witnessed on the chart will propel the stock from $1 per share to $30 per share. Most likely a penny stock will move from $1 per share up to $2 per share and then back down toward $1 per share again. Penny stocks will move quickly on rumors, news releases, signs of insider buying, new contracts and especially when a penny stock newsletter makes a recommendation. A recommendation can cause quite a large move in the stock. However, it will most likely not be long lasting.

The breakout can be one of the most effective and consistent money making trade opportunities that you will run across but you need to be discerning when you are looking at the charts. There are subtle signs and indicators that you can look for that will help increase your profits and lead to picking a higher number of winners.

The most important factor in a breakout is the volume. If the volume is simply average or even below average then I will most likely ignore the breakout and direct my attention elsewhere. However, if the breakout is accompanied by greater than average volume then I will begin to look closer at the penny stock.

I will begin to look closer at the past to see if there has been previous breakouts. If there has been at least two similar breakouts in the recent past (last 3 – 4 months) then I will avoid the stock. I there has only been one breakout in the recent past or if this is the first in a while then I will very possibly enter a position and look to make a quick profit.

The key to playing penny stock breakouts is to buy the stock as early as you can on the day of the breakout. Buying the open on the next day will rob you of much of your profit. Many times the stock will gap up the following day so you will be buying at a much higher price. It is better to buy before the close of day on the day of the breakout.

So how do you find penny stocks that are breaking out on the same day that they break out? You need t have some sort of stock screener. Your brokerage company may provide you with something similar to this. If not then I would recommend a service such as StockFetcher.com. A subscription to StockFetcher is only $10 per month. The data is delayed 20 minutes but it gives you plenty of time to spot penny stocks that are breaking out.


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