(Buy your autographed copy of "Understanding Penny Stocks" online right now!)

How to Choose the WinnersUnderstanding Penny Stocks

Did you know that Peter Leeds publishes his penny stock picks? Visit www.PennyStocks.com and learn how you can benefit from the Peter Leeds Penny Stocks service.

next page »« previous page

Leeds Analysis IX - Technicals

Trend Reversal

Pinpointing when a trend reverses can be very profitable, and it enables traders (who turn out to be correct about their predictions) to trade penny stocks very near their absolute highest and lowest prices. Having paid less for your shares than anyone else means that you should be in for greater profits than most others.

Trend reversals can be a break from an existing trend as mentioned above. However, the most important trend reversal patterns for penny stock traders are topping out patterns and bottoming out patterns.

Topping Out

After a steep or long-term rise, shares may begin to trade flat across their upper range, giving the look of a flat plateau on a mountain top. Often this can be a topping out pattern, caused by an increase in profit takers selling shares while the buyers begin to dry up. As the daily trading mix goes from mostly buyers to mostly sellers, the penny stock begins to trade sideways, and eventually as the last buyers dry up the stock begins to fall.

This downward slide wakes up all the other profit takers that had been on the sidelines, who now begin to worry they are missing the boat. The further down the shares go, the greater the momentum that the slide gains.

Often the rise before the topping out pattern, and the fall after, can take as much as six months each. In many cases, a penny stock will top out for about two weeks to a month.

next page »« previous page