Trading Penny Stocks & Using Volume Analysis

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Trading Penny Stocks & Using Volume Analysis as a strategy to Find Stocks To Buy.

How to analyse penny stock

Technical Data and Trading Charts can help determine the right price to sell or buy penny stocks. These penny stock chart patterns are beneficial for traders and investors alike if you know what you’re looking for. Quickly analyzing trading opportunities by watching any changing trends in share prices and trading volumes is critical for identifying entry targets. Today we’ll look more closely at trading volumes as a way to find penny stocks to buy.

Most Active Penny Stocks To Buy

This brings us to today’s focus: identifying potential in the most active penny stocks. The first thing to understand is what “most active” means. We’re referring to penny stocks with much higher or unusually high volume in most cases. This might mean that trading has increased in a particular penny stock and could signal either growing interest in the form of buying or declining interest in the form of heavy selling.

It’s essential to keep a close watch on technical signals and the level of volume in the market. For example, when trading volume decreases during a specific time frame (3-minute chart, for example), that could mean interest is drying up. You might miss this on a daily or hourly chart, but witnessing a trend like this early by paying attention to shorter time frames could help.

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In this case, the volume drying up could signal that bullish interest has stalled. If that ends up as the case, it could also give a green light for selling pressure in the form of profit-taking or shorting to take the stock lower.

Confirmations & Followthrough
In addition to overall volume, an unusual spike or drop in trading volume might not always indicate or confirm a directional move. For instance, there might be chances that penny stock trading activity shows a bullish spike, and in the next period (depending on chart time frames), it returns to the previous condition. This is where new or inexperienced traders can fall victim to FOMO (Fear Of Missing Out).

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The quick spike can entice traders to trade emotionally and want to “jump in before it runs.” Unfortunately, they learn a valuable lesson in waiting for follow-through in the stock. This is when an unusual spike in activity is confirmed when additional trading & volume candles continue the aggressive trend.

Basically, the first move (or big spike in volume) isn’t always the right move. A 3-minute candle might be bullish, but if the next few candles on the chart don’t have a similar or greater level of bullish volume, it lacks follow-through. The chances of an uptrend failing are generally higher in this instance.

Penny Stock Trading Volume & What To Look For

So, what can cause a spike in volume?:

There could be an unexpected boom in trading volume due topenny stock newsreleases
Management changes
Corporate milestones
Oversight body news (FDA, Patents, etc.)
Industry presentations
Financial news
There is an uptrend happening over a period of time
A gradual increase in trading volume could be caused by either rising or falling prices.
Industry momentum catalysts
Rumors
Social media-fueled trading
There is no ascending or descending movement in Trading Volume
Usually means uncertainty in the market
Potential bullish and bearish sentiment ahead of news or corporate filings
Channel trading can offer day traders opportunities to take advantage of a sideways trend
Sudden decrease due to an unusual event.
A sudden dip in trading volume is occasional. This may take place when investors get scared of investing in penny stocks due to things like significant Company issues
Similar catalysts as with point #1 but more bearish outcomes than bullish
There is a downward trend over a period of time
This happens when the traders and investors do not take any more interest in a particular penny stock.
The market losing faith or a company constantly raising discounted money can be a root cause, among other things
It’s also important to consider other indicators. Here’s an article to get you informed about different penny stock technical analyses: Technical Strategies To Find Top Penny Stocks.

Making Your List Of High Volume Penny Stocks

It’s not unusual to see high-volume penny stocks within the same industry or sector. Retail traders will often identify one breakout stock and look for sympathy trades. Some of the more prevalent examples of this phenomenon came during the COVID pandemic and at the time when “meme stocks” began to captivate retail traders.

When the pandemic hit, plenty of trends sparked speculative trading action in the stock market. The “Great Toilet Paper Shortage” had traders hunting for paper goods stocks. Even if a company didn’t post news in years, it was a target if their “About” section had any mention of paper. We also saw plenty of vaccine stocks skyrocket. One of the most notable penny stocks, Novavax (NASDAQ: NVAX), went on to explode to highs of more than $300 from price levels below $5 at the onset of the pandemic.

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Then we saw meme stocks. Companies like AMC Entertainment (NYSE: AMC), GameStop (NYSE: GME), Bed, Bath, & Beyond (NASDAQ: BBBY), Tilray (NASDAQ: TLRY), and many others took flight. While many had their time to shine, AMC and GME stocks have clearly become the forerunners of this market niche.

The critical thing to remember when making your list of penny stocks with high volume is your strategy. It’s great to see stocks make explosive moves. But if those moves are quicker than you’re prepared for, it could become a losing proposition. For this reason, perfect your trading style and choose high-volume penny stocks that fit your criteria. They don’t always need to be the 1-day movers. There are plenty of high-volume names that trade at consistently heightened levels.

That’s something to be aware of when it comes time to putting together your watch list. Just know that this is just the beginning of your research! Check out PennyStocks.Com’s Penny Stocks Basics section for more info if you’re new to trading.

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