Lessons From A Penny Pro

Why Patterns and Volume Matter in Penny Stocks

Stocks are going to close near the highs, after trading in a tight range for most of the week. We should get to see some more volatility in the market now that earnings have officially started. Now, I teach my clients how to swing trade penny stocks. My specialty is trading small accounts ($25K and under). Last year, I took three different trading accounts and returned 220%, 275%, and 600%.

Some people might think it’s weird that after I build a small account up, I reset and start over again. But for me, it’s not weird. You see, I was an elementary school teacher for 12 years, I taught kids how to tie their shoe laces, run, jump, and play sports. I love teaching and it’s in my blood.

Moreover, I’ve found that I can help most people by teaching them how to grow small accounts, since that is what almost every trader struggles with when they first get started in the stock market.

And so far, I’ve been overwhelmed by all the positive feedback I’ve been receiving:

(Clients like Raki are loving my 10-minute trading system, click here to get started)

That said, I want to show you want of my favorite chart patterns that’s currently working in this market. In fact, I’ve made over $3K in trading profits over the first two weeks of April by just trading this pattern.

It’s called “stairway to profits” and I have two real-money case study trades to show you how it works.

Read on to learn more about the pattern.

Trading Pattern for Penny Stocks

Now, if you don’t already know… I specialize in teaching traders how to build small accounts. What I found works is looking at chart patterns and volume. Well, today we’re going to talk about one of my favorite setups – The Stairway to Profits.

I call it that because the pattern looks like a stairway.

Here’s what I’m talking about.

Take a look at the chart in Vital Therapies (VTL) below.

Notice how the stock found a bottom… and started to turn higher. Well, if you look at the first uptrend (as shown by the yellow lines)… think of that as going up the first step. Thereafter, when the stock started to consolidated (traded between a tight range)… think of that as when you take a short break before you go up the next step.

Now, with this specific setup… you want to buy just as the consolidation ends (when the stock breaks above the upper yellow horizontal line).

Why?

That’s because you can clearly identify a support and resistance area. Basically, there are clear areas to buy, stop out, and look for a continuation.

Now, here’s another look at the Stairway to Profits pattern in ContraFect Corp. (CFRX).

Again, what we’re looking for is to buy as the stock comes out of the consolidation and trades above a resistance level. If you look at the chart annotations above, you have an idea of what I’m talking about. Notice how the stock consolidates… breaks out and runs higher… consolidates again… and runs higher.

Now, just because you see this pattern… it doesn’t mean you should buy it.

You might be wondering, “Well, Jeff… you just told me this pattern is money, why would I not buy it when I see it?”

What we’re looking for is the stock to break out of the consolidation area and start to run higher… while volume is picking up.

Why Trading Volume Matters

You’re probably wondering, “Why do we buy when volume picks up?”

If you don’t know, volume is simply the total number of shares traded for a specific period and includes both buy and sell orders. So when a stock closes higher on volume, that tells us one thing… there are buyers, and if the stock doesn’t break below a support level… it signals the stock can run higher. That’s what you can see in the chart on VSL and CFRX.

You see, when stock run higher on high volume… the move is more sustainable. However, if you see a stock that’s running up on low volume, it might just be a dead cat bounce… and it’ll ultimately trade lower after.

Higher Trading Volume is Better When You’re Buying Penny Stocks

Think about it like this… when there’s more volume when the stock is trading higher, that means there is more money moving into the stock. In other words, that means there is more demand for the stock.

However, if there’s just a small amount of money moving into the stock (low volume), the uptrend isn’t as sustainable. Moreover, when there’s low volume, the stock can be illiquid, and you could be trapped in one of those pump and dump schemes. You don’t ever want to be caught up in one of those.

Not only that, when stocks move on low volume, the bid-ask spread widens, and it could be extremely difficult for you to get the price you want. You want to trade stocks moving on high volume because that means there’s more liquidity – allowing us to move in and out of penny stocks easily.

Here’s another look at the Stairway to Profits pattern… and why volume matters with the pattern.

Now, if Blue Apron (APRN) broke out of the consolidation area when the volume bars were lower than the previous ones… well, that would well me the move isn’t sustainable, and it could be a fakeout breakout.

Just by using this pattern, I was able to bank over $3K alone in the first 2 weeks of April.

In the CFRX trade alone, I got a nice return from my small account… again by using the Staircase to Profits pattern and knowing when to get in when volume is rising.

Now, if you’re interested in trading patterns on stocks like these, make sure to follow us on Twitter. You’ll be getting video watchlists my A+ setups, and how you can build a small account in just 10 minutes.

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