Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Technical Indicators Penny Stock Traders Need To Know

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.

Bollinger Bands

These “bands” are lines plotted two standard deviations above and below a simple moving average for a stock. Since standard deviations reflect recent volatility, the bands will move closer together towards the moving average when there is less volatility and farther away when there is move price action. Traders look for the price chart to move towards these bands as bullish or bearish signals. If the price moves towards the upper band, it indicates the stock is overbought and due for a drop, and price movement towards the lower band reflects the stock being oversold and ripe to buy.

RSI (Relative Strength Index)

This indicator looks at momentum of a stock based on the average of its gains in positive closes divided by the average amount of its losses on down days over a set number of days. This comparison of what amount it goes up by to the amount it normally goes down by yields an index of 1 to 100. If the index nears 70 or more it is a sign that the security could be overbought and ready to turn down. When the index goes towards 30, it is a bullish indicator that the stock could be undervalued.

Technical indicators are more useful with shorter term data and holding periods, as is typically the case with penny stocks. While it is important to get as much fundamental company information as possible, traders are dealing more in short term trends than year over year growth. Gathering as much knowledge and practice with technical indicators as possible sharpens the process of spotting trends and in the end, creates better traders.

About PennyTrader.com

PennyTrader.com is a financial and investor relations website committed to covering the microcap market space including Pink Sheets and OTC Bulletin Board and sub-$5 big board stocks. We we strive to provide you with the best stocks alerts in the market! We focus on OTCBB, OTC, penny stocks, sub-$5 big board stocks, and timely stocks picks and alerts. Our goal is to inform you of the HOTTEST stocks in the market before they move. Our staff has years experience in the stock market, and we are confident that you’ll be impressed with the results of our stock picks! If you wish to feature your organization on our website then you can contact us at publisher@pennytrader.com.

Forward-Looking Statement: This press release includes "forward-looking statements" within the meaning of the federal securities laws, commonly identified by such terms as "believes," "looking ahead," "anticipates," "estimates" and other terms with similar meaning. Although the Company believes that the assumptions upon which its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from the Company's projections and expectations are disclosed in the Company's filings with the Securities and Exchange Commission. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions.

PennyTrader.com is not a registered investment advisers or broker/dealer. PennyTrader.com makes no recommendation that the purchase of securities of companies profiled in this press release is suitable or advisable for any person or that an investment such securities will be profitable. In general, given the nature of the micro cap companies covered and the potential lack of an active trading market their securities, investing in such securities is highly speculative and carries a high degree of risk. For our full disclaimer go to http://www.pennytrader.com/disclaimer/