Technical Analysis Disadvantages with Penny Stocks:
Technical analysis disadvantages are clearly observed with penny stock trading. Technical analysis by itself is unreliable to trade penny stocks, and even more unreliable when attempting to locate and invest in explosive trends in penny stocks called rocket stocks.
The technical formulas and software will work against you trading penny stocks creating many false signals along with some real signals. Here's why. . .
Penny stocks, especially on the OTC BB do not garner much interest for research and trading because they are looked at with great suspicion. So, a nano-cap developmental stock remains fairly inactive, until media and marketeers begin promoting it.
Once the promoting begins, the stock begins an explosive bull trend with little warning from technical trading tools.
When this sleeper stock turns into a rocket stock, the trend up will not usually last long. The trend trader takes great risk buying at inflated prices on an explosive trend of such stocks that typically have little to no profits, millions in debt, no historical evidence as to how long the trend will last. The explosive trend ends sooner than most traders think.
These are the technical analysis disadvantages when trading rocket stocks - the most lucrative trend of all.
Why does the explosive trend happen so quickly?
1) of how thinly traded these stocks are - at least before they are promoted
2) marketeers typically have a huge mailing list of hot pick subscribers waiting to trade the next advertised stock pick
3) other traders, who do not usually research or trade inactive OTC penny stocks, gain interest and begin trading after seeing the highly positive marketing news for the penny stock and the rising value of its shares.
Any small piece of news, any marketeer promotions/demotions by newsletter, hot stock picks, blogs, social media channels, faxes can cause shares of such thinly traded stocks to explode in value or plunge in value before advance technical signals are created.
Most stock traders do not follow sleeper penny stocks until media sources and/or marketeer campaigns begin promoting them. So once exciting news reaches traders, a little trading can create huge spikes in otherwise thinly traded stocks without warning.
Trend Trading - benefits for Larger Cap Stocks are Technical Analysis Disadvantages for Penny Stocks :
Trend trading larger cap stocks with growing market demand and profits is far easier and more accurate to predict, trade and profit from. Technical signals are far easier to read on such stocks.
Penny Stock Risks - Technical Trader Nightmares
Many trend traders assume that penny stocks are far too risky mainly because, unlike large cap stocks with growing demand, rocket stock have no history of demand or profits. Therefore penny stocks create many false technical signals.
The swings and explosions in price movement created are, therefore, highly unpredictable with little to no technical signals forewarning of such move.
Penny stocks are not risky; rather, technical traders are attempting to use technical formulas and software to trade penny stocks, which does not work very well as a primary strategy for the reasons given.
Technical trading of rocket stocks is very risky. For technical analysis to work as a major strategy in making successful rocket stock trades with low risk, it must be able to accurately predict future trends, which it doesn't do well with explosive trends in penny stocks.
NOTE: Technical analysis used as the predominant means of making trades is called technical trading.
Technical Trading uses, and how they fair
• Technical trading is vital for successful algorithmic trading, day trading and swing trading strategies.
• Technical trading can be used successfully in trading all small to large cap stocks.
• Technical Trading is almost useless when trading the explosive trends of developmental and exploration stocks - the rocket stocks. These are micro and nano cap stocks. I have tried it and failed miserably.
Below are the major Technical Analysis Disadvantages:
So many traders are sold out on the hype of technical analysis as a major strategy of investing. All the new fangled technical formulas are so well promoted that traders are programmed to believe in and purchase the programs.
Unfortunately technical trading just does not work with predicting huge moves in penny stocks like fundamentals can do.
Even so, technical traders, novices and investment pigs keep technical trading penny stocks anyway, because they have been duped by media into believing that it works, and that other forms of investing are inferior.
Technical trading does work, but not with capturing penny stock profits from rocket stocks - the most lucrative trends in existence. Many technical traders do not understand this.
All these types of technical traders, are so sold on technical trading, that rather than admitting it just does not work with with predicting stocks, they try ever more complex formulas in the hopes of finding that holy grail to successful penny stock trading - to reap the huge profits from those rocket stocks. They will fail, dashing their dreams and hopes as their investment monies dwindle away.
Using technical analysis by itself to determine future movement is speculative and especially ineffective and risky with developmental and exploration stocks (most penny stocks) because any bit of news can alter the price and volume of such thinly traded securities without any technical indicators or patterns present to forewarn of such moves until the explosive move is happening - too late.
Many good penny stocks are promoted by marketeers in pump-n-dump schemes causing unpredictable swings in share values. No amount of technical data can prepare you for a sudden plunge in prices when the stocks are finally dumped.
Technical analysis cannot predict a sudden explosion in prices as hoards of pigs stampede to buy a marketeer promoted stock.
Using technical analysis by itself to determine if penny stock shares are trading at a bargain is unreliable unless fundamental data confirms the company' shares are really trading at a bargain.
For instance, the company could be heading into bankruptcy, or at risk of being delisted from an exchange, or facing a major law suite, or defaulting on financing payments, or a number of other factors that this site lists and will continue to list. All these factors are extremely common with penny stocks. Over half of all penny stocks are duds or scams.
Fundamental research must be conducted to target high potential sleeper stocks for rocket stock potential. More on this later.
Smart Technical Algorithmic Trading Software creates Technical Analysis Disadvantages
The vast and growing number of investors using technical algorithmic and programmed formula smart software have significantly made technical trading signals unpredictable and more difficult to make successful trades because the formulas are not only tracking fundamental movements of the stocks, but also the buying and selling of each other's technical programs.
Fundamental trading goes beyond the white noise of allusions created by technical traders.
The technical trader will rarely, if ever, be able to track or locate a penny stock out of the thousands of penny stocks for those genuine non-scam stocks that trade at a bargain and are about to explode, let alone to plan a purchase of, or be positioned in, a stock ready to explode in value using technical analysis alone. Why? Re-read all the technical analysis disadvantages so far, and then continue to read the technical analysis disadvantages that follow for the answer.
Trying to catch a ride on a rocket stock already in progress is especially risky because no telling when the stock will plunge again after an explosive trend. A trend trader, therefore, puts himself at great risk buying shares of rocket stocks at inflated prices.
Unpredictability of Trend Trading Rocket Stocks exacerbated by many varied fundamental changes
Any recent news or breakthrough or change in the economy, the stock market, market segment, the company and its financials, public and investor perceptions, new technologies, marketeer promotions, or other fundamental influences affecting the company could alter the share price quickly and even dramatically because of how thinly traded penny stocks are. Technical signals are often too late in forewarning of such drastic trend changes with penny stocks.
Such fundamental data will give the Extraordinary Investor needed information to sense a rocket stock well before technical traders and "pigs" understand what is happening - well before technical traders and "pigs" jump on or off the bandwagon.
This means that, the technical analysis benefits to trading most securities are in fact technical analysis disadvantages when trading penny stocks.
Complete Fundamental Analysis must be the primary strategy of investing in penny stocks for technical analysis to be of great value for the reasons previously discussed. In this way you avoid the technical analysis disadvantages detailed on this page.
Keep in mind though, that fundamental trading of rocket stocks can only work if you know what to look for and how to interpret the data to make successful trades with technical analysis as an essential aid only. This will be explained as you continue.
At best, technical patterns of historical highs and lows in price, basic chart patterns, trading activity and volume of penny stocks are important aids that help confirm good fundamental analysis in locating explosive moves and gauging buys and sells. But, by themselves, technical analysis produces unreliable flawed data when attempting to trade rocket stocks.
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