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It should be standard to check out a penny stock’s financials to ensure it is a viable company, but with the volatility of penny stocks, financials are not necessarily a good predictor of price action. This is where technical indicators come in. Technical indicators rely solely on information from the stocks price charts and trends without regarding the underlying company in order to predict the price of the stock. There are some major technical indicators to know that can be used alone or together to confirm or deny a trend you might see forming in a stock’s price.
MACD (Moving Average Convergence-Divergence)
Moving averages plot the average of a past number of days as time goes on, and MACD typically charts the difference between the value of a 12 and 26 day exponential moving average. This difference chart then has a 9 day moving average, or “signal” line, added on top of it, and the way they cross each other signals buy or sell opportunities. When the MACD crosses below the signal line it is a bearish sell signal, and when it crosses above the signal line, it is a buy signal.
Stochastics
These indicators track momentum by looking at where a stock closed in relation to its recent high-low range. The recent close is expressed as a percentage of the high-low range and this data is used to plot various indicator lines, known as %K and %D. Signals can be obtained in several ways, including by %K-%D crossovers, stochastic lines going outside the 20-80% threshold, or divergences between stochastics and the stock price chart.
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