Penny Stock Chart 101
Ever want to read a Penny Stock Chart? We will be covering certain set-ups and will be expanding on this in the coming days and weeks…but before we get into those details, you should first understand what a penny stock chart is. Simply put, it a price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.
On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right. Technicians, technical analysts and chartists use penny stock charts to analyze a wide array of securities and forecast future price movements of penny stocks. The word “securities” refers to any tradable financial instrument or quantifiable index such as stocks, bonds, commodities, futures or market indices. Any security with price data over a period of time can be used to form a chart for analysis.
Looking For Support & Resistance On A Penny Stock Chart
Support and resistance represent key points where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish penny stocks and selling penny stocks. Demand is synonymous with bullish penny stocks and a trend of buying penny stocks. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.
Knowing how to identify support and resistance lines can help you find the real trend or potential trend that a penny stock may be taking based on these factors. An uptrend line, for example, has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price of penny stocks combined with increasing demand is very bullish, and shows a strong determination on the part of the penny stock buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent.
On the contrary, a downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows greater strength of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that net-supply is decreasing and that a change of trend could be imminent.
This is just a brief overview and we will have more to cover as we demystify the world of “the penny stock chart.”