Lessons From A Penny Pro

How to Trade Penny Stocks: LGCY Case Study

Futures are pointing to a higher open… after a difficult day of trading yesterday… which saw tech stocks roll over from fears of the trade war and possible antitrust investigations (Apple, Google. And Facebook)…

 

 

Furthermore, the Nasdaq fell into correction territory… but is showing some nice bounce here.

But you know what?

Nearly none of this news had any impact on my trading.

No kidding…

Penny stocks trade off their own catalysts…

yesterday was no different…

And today will be no different.

 

 

(I’ve been giving out some of my calls on Twitter lately, follow me here)

 

Now, there is no guarantee that today will be as good as yesterday.

 

 

(Penny stocks are not trading with the rest of the market… and I love it…click here to learn more about my trading system)

 

That said, I’m a firm believer of doubling and tripling down on your strengths. Furthermore, I want to walk you through two of my best winners from yesterday.

I study my winners because often times, these patterns repeat themselves… especially what we saw in Legacy Reserves Inc. (LGCY) on Monday… a stock that closed up more than 320%

Read on to learn more.

 

Penny Stocks Ignore Market Conditions

 

The markets were weak yesterday… yet again, and the Nasdaq entered into correction territory, after the Justice Department announced it was preparing to launch an antitrust probe on Google…

… Facebook (FB) was also hit after news broke the Federal Trade Commission would look into FB’s practices.

Well… if you’re holding tech stocks, sorry to hear…

… because there are plenty of opportunities out there that move just as fast as tech stocks.

I’m not doing anything new here, just sticking to my bread-and-butter setups – looking at chart patterns in momentum stocks.

In just one day… I was able to lock in over $2K on my small account, all while the market was taking it on the chin.

 

(Not getting my alerts? Use this link to fix that and to join now)

 

That said, I’m going to go over how we were able to spot a stock before it hit a high of over +500% on the day!

 

Chart Patterns for Momentum Stocks: LGCY Case Study

 

Check out this daily chart in Legacy Reserves (LGCY).

 

 

At a first glance at this chart… it might not look like much to you.

However, knowing levels and where gaps are with momentum stocks helps.

 

Know Your Levels

 

You see, knowing where levels are works in penny stocks.

For example, when I see a gap above… I actually like that a lot.

Why? Because when a stock gets into the gap… it almost acts like a vacuum… just pulling the stock higher. Now, the gap was created because the stock opened lower than the previous close.

In other words, a gap is just a large difference between the opening price and the close price from the prior day.

 

 

Check out the chart above in LGCY… the previous high here was around 17 cents… now if you look closely…

… there’s a gap there, which just so happens to be right around the weekly high.

Now, when a stock breaks above its weekly high and gets into a gap… that’s actually really bullish in my opinion.

Why?

Well, the previous weekly high tends and the high of a gap down tends to be a resistance level. In other words, traders are willing to short or sell the stock here.

But what happens if the stock breaks above that level?

That means the sellers have backed off and the bulls are back in control.

That said, if you’re trading penny stocks, you should keep these levels in mind… whether it be the daily high, weekly high, monthly high, 52-week high, whatever the case may be… because a break above these levels could uncover a lot of trading opportunities for you.

Now, that wasn’t the only indicator I was watching for in LGCY.

I also knew where the 20- and 50-day simple moving averages were…

Here’s a look at the 15-minute chart in LGCY.

 

 

Notice the three horizontal lines there?

Well, the blue horizontal line is where the weekly high was.

Notice how once LGCY broke above 17 cents… it just continued higher?

I told clients about this trade… and to look for a gap fill to 23 cents…

I also told them to look for a break above the 20-day moving average line (the red horizontal was where the SMA was)…

I also told them to look for a break above the 50-day moving average (the green horizontal line was where the SMA was).

Here’s a look at the daily chart in LGCY again.

 

 

Notice how once LGCY broke above the blue line (the 20-day SMA)… it ran higher… then once it broke above the red line (the 50-day SMA)… it continued running.

That’s how momentum stocks are… once they break a key level, they just go flying. If you read one of my previous posts on how to use moving averages for entries and exits… you probably could’ve spotted this trade.

Now, it’s not only about looking at charts all the time… it’s also about understanding the news.

Sometimes, you need to focus on the news in addition to your charts if you want to trade momentum stocks.

For example, LGCY actually had positive news this morning. The company announced that it was entering into forbearance agreements with its lenders over the weekend.

What that really means is the company found some alternatives and bought itself some time to look for new potential investors, buyers, or financers… whatever the case may be, it was good news for the stock.

Now, when I figured all of this out… I let traders in the chatroom know about the trade.

 

2:09 PM  Gregory Bush: Out LGCY at .815 avg from .305   + $10,200  Fearing a stop trading from SEC.

 

 

Now, this wasn’t the only stock I made money in today… I also found a trade in Approach Resources (AREX) based on my trade in LGCY.

You see, AREX and LGCY are similar stocks and are in the same sector.

When one stock moves on news… stocks in the sector follow.

This is what we call a sympathy play.

Think about it like a big brother and little brother… wherever the big brother goes the little brother follows.

Well, LGCY was the big brother here… and AREX was the little brother.

Once I figured out AREX could move in sympathy with LGCY… I let traders in the chatroom know about the play… again.

 

 

Notice something similar about AREX and LGCY?

They look nearly identical… with both stocks breaking above the 20- and 50-day SMAs.

Here’s what people in the chatroom were saying about these trades.

Jun 3, 2:11 PM

greg b. : Truthfully, I have Jeff to thank for this one. He found it first! Thanks man!

2:12 PM  Marco Biasiolo: sold half pos of AREX at .29 from 0.259 thanks for this trade Jeff, still holding 10k shares

Now, charts and knowing a bit of fundamentals work when it comes to penny stocks. If you want to watch me trade penny stocks and receive real-time alerts to trades like LGCY and AREX, click here to get started.

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