We’ve all come here for one reason: Getting Information on
Penny Stocks or finding the best penny stock today?. With
many small cap stocks and micro cap stocks being considered
penny stocks, there are many things that need to be taking into
account because yes, they do have higher risk than something
like Microsoft or Apple…at least during the early stages of
development.
A lot of the risk for trading penny stocks comes from volatility
in markets. At the drop of a hat a penny stock to buy can
explode 20, 50, 100, or even 300% within the matter of weeks,
days or even hours. The important part pay attention to during
times of increased volatility is the chart. Historic levels of support
and resistance on penny stock charts can shed some light on
where there are strong points on the chart that show where a price
could hold up…especially during times of a pull-back. The main point,
as with any stock, is not to let emotion dictate the pace and think logically.
During times when you get a massive short squeeze and market
makers basically need to give up and cover, the second day
following a major squeeze needs to be followed closely. Unless
there is another monster day of bullish momentum, there’s a
good chance that short traders will short even heavier to attempt
to make money back after losing “yesterday”. This could trigger
some very volatile days to follow and many times, periods of pull-
back. The major reason for the pull-back after such a big day has
more to do with where the real “retail market” is.
Obviously a stock can’t go up every day and needs to
consolidate but after such a big day on the day of a short
squeeze, the market needs to find where the true retail
channel is. The point is to stay calm, don’t let emotions
dictate the pace. After you see such a big short squeeze,
a healthy market will need to find its real base. Keep in mind
that most of the time there is a short squeeze, there’s typically
more buying coming from short traders and not necessarily
retail buying directly. It’s normal to see a pull-back so it’s best
to remain calm and pay attention to the historical levels of support
and resistance.
For example if a stock is trading around 2.50-3.00
consistently and shows clear resistance levels around $3,
there’s a good chance that a short is beginning to build.
Now say a short squeeze triggers, and that stock has a move
above $4; that big move doesn’t necessarily mean that the market
is at $4, it could just mean that there wasn’t enough resistance to
hold back the price during the time that short sellers needed to buy
back shares to cover their short position. Keep in mind that shorting
deals with borrowing shares and not borrowing price. What we mean
is that if you short a stock, you essentially are borrowing a number
of shares of stock and when you need to cover your short, you need
to pay back those shares.
If you were short 100 shares at $2 and now the price is
at $4 when you have to cover your short position, you would
have been forced to pay double the price in order to pay back
your position. This is why we say that a short squeeze doesn’t
necessarily represent the true retail market. Again, there can be
a lot of volatility following a short squeeze that includes panic
selling and heavier shorting so it’s important to stay calm and pay
close attention to the trend, sometimes cost averaging at lower prices,
or even holding strong as another short squeeze could trigger. All things
considered, the final decision is up to you but you should take into
account these other factors especially when there is a giant spike in price
and volume. A healthy market will not go up every day and taking advantage
of the volatility can be where a lot of money could be made when looking for
penny stocks to buy in 2017.
Penny Stocks or finding the best penny stock today?. With
many small cap stocks and micro cap stocks being considered
penny stocks, there are many things that need to be taking into
account because yes, they do have higher risk than something
like Microsoft or Apple…at least during the early stages of
development.
A lot of the risk for trading penny stocks comes from volatility
in markets. At the drop of a hat a penny stock to buy can
explode 20, 50, 100, or even 300% within the matter of weeks,
days or even hours. The important part pay attention to during
times of increased volatility is the chart. Historic levels of support
and resistance on penny stock charts can shed some light on
where there are strong points on the chart that show where a price
could hold up…especially during times of a pull-back. The main point,
as with any stock, is not to let emotion dictate the pace and think logically.
During times when you get a massive short squeeze and market
makers basically need to give up and cover, the second day
following a major squeeze needs to be followed closely. Unless
there is another monster day of bullish momentum, there’s a
good chance that short traders will short even heavier to attempt
to make money back after losing “yesterday”. This could trigger
some very volatile days to follow and many times, periods of pull-
back. The major reason for the pull-back after such a big day has
more to do with where the real “retail market” is.
Obviously a stock can’t go up every day and needs to
consolidate but after such a big day on the day of a short
squeeze, the market needs to find where the true retail
channel is. The point is to stay calm, don’t let emotions
dictate the pace. After you see such a big short squeeze,
a healthy market will need to find its real base. Keep in mind
that most of the time there is a short squeeze, there’s typically
more buying coming from short traders and not necessarily
retail buying directly. It’s normal to see a pull-back so it’s best
to remain calm and pay attention to the historical levels of support
and resistance.
For example if a stock is trading around 2.50-3.00
consistently and shows clear resistance levels around $3,
there’s a good chance that a short is beginning to build.
Now say a short squeeze triggers, and that stock has a move
above $4; that big move doesn’t necessarily mean that the market
is at $4, it could just mean that there wasn’t enough resistance to
hold back the price during the time that short sellers needed to buy
back shares to cover their short position. Keep in mind that shorting
deals with borrowing shares and not borrowing price. What we mean
is that if you short a stock, you essentially are borrowing a number
of shares of stock and when you need to cover your short, you need
to pay back those shares.
If you were short 100 shares at $2 and now the price is
at $4 when you have to cover your short position, you would
have been forced to pay double the price in order to pay back
your position. This is why we say that a short squeeze doesn’t
necessarily represent the true retail market. Again, there can be
a lot of volatility following a short squeeze that includes panic
selling and heavier shorting so it’s important to stay calm and pay
close attention to the trend, sometimes cost averaging at lower prices,
or even holding strong as another short squeeze could trigger. All things
considered, the final decision is up to you but you should take into
account these other factors especially when there is a giant spike in price
and volume. A healthy market will not go up every day and taking advantage
of the volatility can be where a lot of money could be made when looking for
penny stocks to buy in 2017.
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