Patterns for true penny stocks vs. ‘real’ stocks

Are you struggling to recognize patterns in big runners?

Then you see the stock take off without you because you didn’t see a clear entry?

You might be looking for the wrong patterns in the wrong stocks.

There are certain patterns that work well for penny stocks…

And there are patterns that work best for ‘real’ stocks or higher-quality stocks.

If you’re mixing them up, you’re probably having a rough time and getting frustrated when you don’t see an entry…

So let me clear up some confusion and show you which patterns to focus on for which stocks…

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True Penny Stock Patterns

True penny stocks usually don’t survive for more than one day.

That’s why patterns like the morning panic dip buys work so well for true penny stocks.

When they fail to hold up, traders panic sell which creates big morning dips.

Learn more about the morning panic dip buy here.

Breakouts also work well for true penny stocks because they’re simple patterns to recognize.

And when you trade penny stocks, you’re not competing against hedge funds and big money.

You’re trading against regular folks who can recognize simple patterns like breakouts.

See how you can trade breakouts smarter here.

There also aren’t a lot of short sellers in true penny stocks because they’re too low priced.

But when you trade higher priced ‘real’ stocks, you can look for patterns that have entries at key short seller panic points…

“Real” Stock Patterns

I use ‘real’ in quotation marks because these don’t have to be real, real stocks like Microsoft Corporation (NASDAQ: MSFT)…

These can be stocks that are just higher priced — somewhere between $5-$20.

Higher-priced stocks can hold their gains and put together multi-day runs better than most true penny stocks.

That’s because they can become heavily shorted, which can create short squeezes.

So breakouts over key levels can work well in these stocks as well. But you can also look for other patterns with entry signals where shorts panic…

Like the red-to-green pattern.

A key component of a red-to-green pattern is a stock that closes near the high of the day, on the day before.

And how often do you see a true penny stock that closes at or around the high of the day? Not often.

Another component that makes the red-to-green pattern successful is short sellers.

Look at C3.ai, Inc. (NYSE: AI)…

The only reason it has been one of the best stocks for red to greens for weeks is because the shorts are looking for that first red day…

When shorts see a stock that just goes up and up for days or weeks, when it gaps down, they jump into short the first red day.

And most of them have their stop at the green level.

So when the stock goes green, that’s that point where I say everybody’s buying. True believers are buying, short sellers are buying…

And that’s what makes this pattern so predictable and how we can take advantage of volatile moves to the upside.

So before you plan a trade today, make sure you’re looking for the right pattern in the right stocks.

If you need more guidance finding the right stocks and finding out what to look for — join me for my Market Update videos three times a week.

Have a great day everyone. See you back here tomorrow.

Tim Bohen

Lead Trainer, StocksToTrade