Penny Stocks For Dummies
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In penny stocks, a picture is worth a thousand words. Trading charts display a penny stock's price — and usually trading volume — over time, in chart format. You can choose the duration of time and see how the price performed over a day, week, months, a year, or even longer.

You can view trading charts for free from your broker and on numerous websites, including Big Charts, and the financial websites referenced in the preceding section.

What you'll find on a typical trading chart

Here's a rundown of what you'll find on most trading charts and what you can do with that information:
  • Price trends: A price trend can appear in the price of the stock for a particular duration of time. By observing the trading activity in the price of the shares you can spot trends. Based on this information, you can determine whether the penny stock seems to be moving in the right direction. You can also see big price movements and, by looking at the date, cross-reference the change in the penny stock with an event, financial release, or news item. For example, if a penny stock doubled in price on a single day two months ago, you may find that it happened in direct response to a major FDA approval announced that same day.
  • Trading volume trends: Trading volume is the number of shares that trade hands; the more shares that change hands, the greater the trading volume. A bar on the bottom of the chart tracks trading volume for the time frame (day, hour, or week) you select. The more shares trading hands, the greater the volume bar will be for that time period. If the trading volume is noticeably greater over a certain period, you know that the buying and selling activity was that much more active during that span. Trading volume gives investors clues as to increases or decreases in activity over time.

You can use trading charts to apply more advanced analysis to the penny stock. For example, by examining trading activity combined with price activity, you may find that the shares are highly likely to go up in the short term. This is referred to as technical analysis (TA). However, even without TA, the charts are very useful.

Types of trading charts

The three main types of trading charts, each with its pros and cons, are as follows:
  • HLC charts: HLC stands for high-low-close. Perfect for investing in penny stocks, HLC charts display just the right amount of information investors need. They show:
    • The high and low price each day, indicated by the height of the bar

    • What price the shares closed at, represented by a dash to the right of the bar. For investors looking for a bit more, an open-high-low-close (OHLC) chart displays the opening price with a dash pointing left, the high and low price for the day indicated by the line, and then the final price of the day via a dash pointing right.
  • Line charts: These simple charts show only the closing price of a stock over time, represented by a single line.
  • Candlestick charts: These complex charts display the trading range and where the shares opened and closed each day. You can infer clues about the potential future for share prices via several patterns that may appear on the candlesticks.

About This Article

This article is from the book:

About the book author:

Peter Leeds, also known as The Penny Stock Professional, is the publisher of Peter Leeds Penny Stocks, a popular financial publication with over 50,000 subscribers. He is also the author of Invest in Penny Stocks.

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