How To Best Determine If A Penny Stock Is Ready To Make A Big Move

In trading penny stocks, which are stocks typically under $5 per share in price, determining if they're getting ready to make a substantial move is really not much different than doing so with higher priced issues. The reality is that there are a few key indicators that often act as precursors to significant share price movement.



Of course, there are several very good free stock alert services easily found online who have been known to accurately predict price movements in penny stocks. However, in conjunction with such services, certain technical indicators can help you more readily pin-point when a penny stock is about to make a breakout move.



Price/Volume Trend; More specifically known as PVT, is a technical analysis indicator that is extremely helpful in identifying increasing volume over a period of days combined with a price movement in a dominant direction. So when the share price of a stock is trending up the Price Volume Trend indicator should be going up to. It is important, however, to be keen to a potential negative divergence such as the PVT failing to make a continued upward move as the price of the stock increases as this is very suggestive of a weak move and a potential retracement downwards.



Another valuable tool for stock investors is the Moving Average Convergence/Divergence, otherwise known as MACD, which is one of the simplest and most reliable indicators available to stock traders. The MACD uses moving averages, which are typically lagging indicators, to help determine potential direction of share price. Although a bit more complicated than the PVT this tool should be studied closely prior to being used in trading shares of any price.



These two well respected trading tools can prove very useful and should be well understood prior to relying on them to help you determine which direction a stock is moving. However, there are numerous other technical analysis indicators that can be used when trading penny stocks. Don't work with only one or two, rely on several, and if you can also find a good penny stock alert service to use in conjunction with these more technical tools you should be in good shape as you trade in this often volatile market.



There's no doubt that although there is risk involved in trading penny stocks, the volatile nature of these issues can work in your favor, if you have the proper tools. Of course, as with trading stocks of any price it is also helpful to find companies with great growth potential and a solid management team.



However, what many investors don't realize is that the penny stock arena can offer excellent trading opportunities to investors who are willing to take on a bit more risk. What's most important is to be armed with the proper tools, which should include a combination of technical analysis and valuable informational services, to aid you in reaping the much sought after rewards of this exciting trading market. There's no doubt that proper preparation can make all the difference in your trading success with penny stocks.