• January 18, 2016 at 7:02 pm#584

    Because many penny stocks have low volume, trading penny stocks with technical analysis can be unreliable. The higher the trading volume creating the technical patterns = the more trustworthy the patterns can be, the lower the stock’s volume = the more untrustworthy. Although volume spikes can occur, increasing the reliability of some technical patterns such as technical support and resistance levels and topping and bottoming patterns, most technical indicators are just unreliable when trading penny stocks with low volume.

    While price movements in large blue chip stock happen most often because of fundamental and operational results, penny stocks trade mostly based off of speculation, the possible future potential of that company. So if trading low volume penny stocks can’t be done confidently with most technical analysis and indicators, how can they be traded?

    One method popular among penny stock traders and investors is the Leeds Analysis. Developed by Peter Leeds, who started trading in penny stocks when he was 14, Leeds Analysis is based mainly on fundamental analysis, which he considers the most important aspect of looking into ANY company including penny stocks. Technical analysis makes up only about 10 percent of the Leeds Analysis review.

    While Leeds Analysis doesn’t look at a company’s Board of Directors, book value or insider buying and selling as criteria when evaluating a penny stock, it focuses on 29 separate and distinct points to look at before deciding to enter a trade in a penny stock. In his “29 Point Leeds Analysis for Penny Stocks” Peter describes the following topics in much greater detail:

    1. Trends in Profits and Earnings
    2. Trends in Market Share and Market Size
    3. Barriers to Entry
    4. Financial Ratio Trends
    5. Competitive Strengths and Weaknesses
    6. Balance Sheet Realities
    7. Buybacks, Liquidity Direction, Cash Flow
    8. Industry Clouds and Sunshine
    9. Political and Social Trends
    10. News Releases
    11. Alliances, Customers, Partners
    12. Insider and Institutional Ownership
    13. Market Risk
    14. Company Risk
    15. Competition in Penny Stocks
    16. Executive and Management Team
    17. Employee Pool
    18. Legal Action and Intellectual Property
    19. Consolidation and Shareholder Turnover
    20. Temporary Dips and Spikes
    21. Permanent Dips and Spikes
    22. Support and Resistance
    23. Topping and Bottoming
    24. Current Trend and Reversals
    25. Brand Value Trends
    26. Brand Awareness Trends
    27. Connotations Among Prospects and Customers
    28. Product Positioning
    29. Product Differentiation

    You can read more about Peter Leeds and his Leeds Analysis method at peterleeds.com

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