Charting can be a remarkable tool to discover trading opportunities in Penny Stocks, but it is important
    to use them properly and over a correct time frame.  Typically we use weekly candles but some penny
    stocks will work just fine with daily charts.  Only look for patterns or traditional formations when the market
    is in extreme over bought or over sold levels.  The bullish or bearish engulfing patterns are very reliable
    when RSI or MACD are very high or low on weekly charts.  These are large candles that overshadow the
    last few and come right at the top or bottom.  We particularly like the fact that these charts use logic and
    information that we already know, but put it in an abstract for easy use.  Just be careful not to let these
    charts create emotions.  Black and white are a lot better colors to use than red and green.

           When looking at and trying to understand candlestick charts, use time frame divergence.  This involves
    looking at increasingly smaller time frames to confirm candlestick patterns.  This will help you determine
    which patterns are more reliable and which ones are completely false.  Looking at as many time frames as
    possible will also help you learn what happens when a candlestick pattern is formed and what it's key
    elements are.

When looking at charts of OTC BB stocks be sure to use an appropriate time frame.  Stocks that were very
lightly traded for a long time and suddenly came to life only need to be view from the time volume came in.  
Always look at at least a few months worth of data and look at your own needs and expectations.  Although
it is important to know the entire history of a stock, if you have short time horizons, look at shorter charts for
important trade decisions.  Trying to pick a low on a monthly chart can take a long time to pan out.  Daily
charts are the best way to go.

Moving Average indicators can be a great tool for Penny Stock decision making, but not in the traditional
way.  Common technical analysis tells you to use two moving average indicators like a 50 day and 200 day
and to react whenever they cross each other.  In this strategy you would buy when the shorter moving
average crosses above the longer one and to sell when the opposite occurs.  Historical testing of this
shows that there is no better way to lose your money as this strategy often brings you to the table way to
late.  A sell indicator will usually come once the stock has already plummeted and the best you can do
normally is break even.  We use two or three moving averages but watch for them to spread hand with the
MACD (moving average convergence divergence).  A perfect technical chart simply shows some moving
averages, the MACD and volume.  We buy when shorter moving averages extend below the longer ones by
significant levels and the MACD is at its low end of a longer term range, usually six months or so.  This
combined with the proper interpretation of volume will lead you to the right places to begin to perform
fundamental analysis.

           All in all, do not trust technical analysis without looking at the facts.  Try looking at past charts and see
    what the news did to the stock price. This will help you clear up your crystal ball a little bit.  Look for price
    drops due to unrelated bad news for great buying opportunities.
    Tweaking Charts for Low Priced Stocks
    PSW Staff
©2010 Penny Stocks Weekly  -  Home  -  PSD 10  -  Terms  -  A Message From The SEC  -  Important Information On Penny Stocks
Free, unbiased analysis & opinion on small & micro cap stocks
You need Java to see this applet.
    Enter Symbol, Company Name or Keywords:
    Strategy Desk
    Free Premium Subscription Offer

    Full article access includes Buy, Sell & Stop-Loss conditions along with a no nonsense
    trading strategy.  Don't jump in blind, subscribers also get a detailed risk analysis,
    suggested position weight and time horizon ideas.  Also access our Small & Micro Cap

    Get started for free right now with our weekly newsletter.