How Bollinger Bands Can Make You Millions Trading Penny stocks!
One of the top technical indicators penny stocks traders use to make millions is Bollinger Bands. Some investors even use Bollinger Bands exclusively in their trading strategy. What is this apparently important technical indicator, and how can it help you to make millions trading penny stocks? The same way it helped its inventor John Bollinger that’s how! John Bollinger is a famous technical trader and financial analyst; in fact he is the first person to ever earn the dual qualification of Chartered Market technician (CMT) and Chartered Financial Analyst (CFA). He is currently the president of Bollinger Capital Management, an investment management company founded by him that provides technically-driven financial management services to individuals and institutions. His Bollinger bands can be invaluable to anyone trading in penny stocks.
Bollinger developed Bollinger Bands during the early 1980s, and they are basically lines drawn on a chart defining highs and lows of penny stocks on a relative basis, in this case using standard deviations below and above the twenty day moving average. A mathematical formula is used to ensure that ninety five percent of data falls between the two bands, but the favored indicator of experienced investors is known as “walking the band or riding the upper band. If a penny stocks price closes above the Bollinger Bands during an uptrend, it could be an indication that the trend will continue rather than reverse. This has been a successful indicator used by many traders, as at a glance one can determine if penny stocks are trending sideways, upwards or downwards.
Strategies for Trading Penny Stocks Using Bollinger Bands
One simple and effective strategy often used by traders is buying on the break of the bottom (low) band. In every single instance where a trader made money using this technique the break of the bottom band was in territory which indicated the stock was oversold. Penny stocks that follow this pattern face heavy selling pressure, but generally that selling trend is corrected quite quickly when the middle band is broken and the price heads towards that of the upper. If other traders don’t recognize the signs and begin buying however, the stock could continue its decline, so due diligence should always be exercised when trading penny stocks. Company news and industry sector announcements should be consulted to determine if the stock will attract the interest of other savvy traders.
Earlier “walking the band was mentioned, and indeed this is the most popular method of using Bollinger Bands amongst traders. If the price of a stock is “walking along the upper band, it can provide a good indicator to those wishing to trade penny stocks according to a trend or specific direction. The idea is to make your trade based on the assumption that the trend will continue upward, but may beginning g investors panic at that point and begin to sell. The fact that the price breaks the upper band doesn’t necessarily indicate a reversal, and conversely, breaking the lower band doesn’t automatically mean that the price will turn upwards. Bollinger stated this himself, and millions have been made by traders who continued with or traded in the direction that a stock was moving above the upper band.
Bollinger Band Basics
There are some basic rules that apply to trading penny stocks according to Bollinger Bands. They are not hard and fast rules due to the nature of the markets and investing, but they are common occurrences which generally indicate profitable directions to trade in. First is that; when penny stocks are above the middle Bollinger Band the stock is considered to be bullish, and when it is below the middle line bearish. It is always best to consider a chart for at least 5 trading sessions. When the price is moving at a 30 – 45 degree angle and breaching the upper Bollinger Band it is possible to generate huge profits. Keep an eye out for when the top and bottom bands are moving up together, as that could indicate an explosive breakout.
Bollinger Bands as you can see can help you to make huge profits trading penny stocks. Of course developing the instincts to know when a huge breakout might occur takes years, and therefore it is recommended to subscribe to a penny stock newsletter before making any actual trades in penny stocks. That way you can receive hot penny stock alerts from seasoned traders like the team at Xtremepicks.com who have already done the research needed to affirm the value of rising penny stocks, and who have the track record to prove they have the know how.
Max Gordon has a penny stock newsletter and writes articles on penny stocks, penny stock trading and penny stock picks.Ã‚Â He gives reliable advice on how to make money with penny stocks and where to obtain the very best penny stock pics.