These rules and guidelines don’t just apply to penny stocks, but all different types of securities.
1.) Forget about the news and just follow the chart. All information will be revealed in a stock chart before the news. We are not smart enough to know how the news will affect price, and few people are. The chart already knows the news is coming, and it will be broadcast to those that look closely at the chart.
2.) You should buy the 1st pullback from a new high or short sell the1st bounce from a new low. There’s always a trader that missed the first trade that will be looking to partake.
3. ) But when a stock is approaching support, and sell when a stock is approaching resistance. All traders see the same levels and they are all just ready to get in.
4.) Short sell rallies rather than sell-offs. When stocks have dropped a decent amount, short sellers will have a profit and be ready to buy to cover.
5.) Don’t buy up into an important moving average or sell (short) down into then. Moving Averages act as resistance from above and support from below.
6.) Don’t chase a stock if the stock has moved past your initial entry by more than a specified amount. Markets will almost always reverse the minute you enter and If it’s a long way to the original entry price, you’re could get badly burned very quickly.
7.) 99% of the time exhaustion gaps are filled. Breakaway & continuation gaps are not always filled for a long time. Trade in the direction of gap support when possible.
8.) Trends usually test previous support or resistance before continuing. Enter at these levels on a pullback even if it’s difficult for you.
9.) Trade with the TICK not against it because when you are wrong you will get burned. Follow the flow of money.
10.) If you have to look too hard at the chart, what you are looking for is not there. The patterns should be obvious once you know what to look for.
11.) Sell the failure of stock to break above the second high (double top), buy the failure of stock to break below the second low (double bottom). After sharp pullbacks, the first test of any high or low almost always meets significant resistance. Look for the break on the third or fourth attempt
12.) The trend is your friend in the last hour. When volume increases at 3:00 pm don’t expect anything to change. Institutions usually place there trades into the close
13.) Avoid the first 5 minutes after the open. Stocks rarely trend during this time and usually make false moves.
14.) Downtrends usually reverse after topping action, two lower highs, and then a double bottom.
15.) Bulls live above the 200 days, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it. Don’t actually trade of these moving averages since the noise around them will chop you up and eat you alive.
16.) In general, the price of a stock has memory. What happened the last time price hit a specific level? Chances are it will do it again at least the first time it gets back to this same level. After the 2 attempts, all bets are off.
17.) Giant volume usually signals a change in trend. Capitulation and blow-offs usually result in consolidation or sideways price action and choppiness.
18.) Trends never reverse quickly but tops are very defined. Reversals take time to build and result in specific patterns. The first big drop almost always finds buyers and the first spike almost always finds sellers.
19.) Bottoms take much longer to form than tops in general because many waves of buyers must be shaken out before a true bottom forming. Fear affects buyers more quickly than greed and causes most stocks to drop fast.
20.) Beat the herd into the trade and getting out. You have to take their money before they take yours because trading is a zero-sum game! One person always winds and one person always loses.
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