Penny Stock Trading pt2

Interested in the First Commercially Available Stock Trading Robot?

LONG TERM — Lets pause and check out the LONG TERM. (NOTE — this is a 2 yr chart, BQI was CWPC and 3 years ago peaked just under $9) Lets talk EW. I posted before on EW and caution about using EW as it becomes less valid as manipulation becomes more possible. BQI is HIGHLY subject to manipulation so use EW with caution. Anyways what is clear is the move to $7 was impulsive (Jun 08), the move we are now in seems to be corrective, IE counter. So the real question is what wave was the move to $7. I spoke of this before and it was not clear IF this was a 3rd wave of wave 3 up, OR as someone pointed out a completing 3rd wave correction B of C.

So lets discuss this more so others can understand. The major question is in June at $2.50 was the correction complete? If so we are in a 3 of 3 up and we can expect this is a corrective wave 4 now meaning more upside to follow. HOWEVER what if the move to $2.50 was just an A wave of a larger degree correction? That would mean the move to $7 was the completion of B wave and corrective wave C to come, meaning a move to at least the old lows of $2.50 and we would be looking for a 5 wave move for C. I will state at the time (July) I favored a 3 of 3 up meaning we were in a wave 4 correction and used the suggested alternate count of B completing and C down beginning as alternet. What this is to mean is simple; the long-term trend until proven otherwise is UP. Mid term we are in a consolidation, short term DOWN.

Hypers calling this the best buying op in years, TA and skilled traders/investors warning to stand aside.

Notice on 1 year chart how a triangle formed (from the base of the leg up to the recent high). On the chart notice when a black candle formed with a close BELOW the $5 support level and the triangle broke to the downside. Also note a MID TERM trend line starting at $3.00 in Jan 08 was also breached on the close below $5. Very clear definite breakdown. Also notice the close BELOW the 50 EMA and notice the 200 EMA is at $4.80 All longs need to be out at this time as TA wise BQI is a SHORT. The alternet count is now becoming the primary count. However on the boards the novice will be screaming how BQI is GROSSLY under valued, it makes no sense to be this low and anyone selling is a total fool. Of course smart money has run for cover and is likely SHORTING the stock, or in the very least totally out. A target for the move can be GUESSED at by using the base length of the triangle, which is about $2.10, break level was about $5.10 giving target of $3.00 and everyone can also clearly see solid support at $3, thats our next target. Note this stock has shown $4.00 as a criticial R/S level in the past.

Over the next 2 weeks BQI is clearly trading down, pauses around the $4.00 support level and touches $3.60 a minor support level. This forms a 3rd point on the up trend line from the $2.50 low and we bounce up. We are well below the 200 EMA, the stock is very oversold and the stochastic fast line turns up thru the slow line; SHORTS likely covering; short term traders try for a bounce, and the novice longs scared sh!tless but claiming it’s a great buying op, in fact PLEASE BUY as I am getting HOSED (they don’t actually say that, that’s what they are feeling)

However what is clear is this move is IMPLUSIVE, meaning with the trend. The trend is DOWN. So it is clearly the alternate count and therefore the 1st wave down of C (also it seems that this 1st leg was 5 waves and therefore COMPLETE so count is this bounce will be a corrective 2 of C) therefore the near $7 was in fact a completed B wave (A being the $2.50 low). At the time I posted watch for the $4.90 to $5 level as likely completion point for this bounce (should we get thru then look for 50% retarce and resistance levels, $5.60 would be 50%). Over the next 8 trading days we get to $4.80, during this time the novice will be thanking god the correction is complete, they will of course be all in, and will be telling everyone how great a deal BQI was at $4.00 Of course the TA guys are playing as a short term rally and like I said watching the $5 level to exit bounce and go short on reversal candle. Notice on the chart the nice white candle move to $4.70, encouraging and I figured a good sign we would at least see $5.

However on the open the next day we touch $4.80 and the next 3 days brings 3 black candles and totally negates the nice white one. The stock is now showing signs of a DEAD CAT bounce; the stock can only manage a 38% correction, a very negative sign. By the way note 38% is a fib number and often used as the first level to watch for a correction to complete and resume the overall trend. Also notice it was a 3 wave jig zag (means wave 2 could very well be complete and 3 of C is starting)  Notice what the stochastic has done, it weakened, indicating the rally has stalled. Over the next 6 days or so the stock flirts with the $4.00 level, it is weak, it cannot muster a run to the $5 resistance, and this is clearly a counter move and is confirming our EW wave 2 of C. Now that’s scary because when this wave 2 ends we go into a wave 3 and as many know those tend to be ugly. A long term up-trend line is at about $4.00 and its not looking good, the stock is performing poorly, notice the 200 EMA is clearly acting as over head resistance and is turned down. The LONG TERM trend is turning DOWN and signs are the long-term trend line will give out. Smart money is watching for a another SHORT op. Stock trades down to $3.60 breaking the long term up trend line, bounces up and cannot get above $4.00 which is now strong over head resistance. TA people know it is very common when a major trend line is breached the stock will RETURN to test the underside of the trend line and should it fail (as is normal) we call it the KISS of Death. SELL SELL SELL

Now keep in mine we are EXPECTING a wave 3 down, have signs wave 2 is complete and looking for CONFIRM its a 3 started WHEN. The kiss of death is now the 3RD indication wave 3 down has started (1st was the trend line breach, 2nd was the MADC/200EMA action). TA wise BQI is a PRIME short at $4.00 AGAIN for the next move down. But on the boards you can bet the scared novice are stating FOR SURE the correction is over. They will be listing HUNDREDS of reasons why BQI is the BEST buy in the world at these levels. HOWEVER as I point out TA wise BQI is plain ugly and SCREAMING SHORT me.

Two days later on the 10th Sept with record volume BQI touches $1.68 on panic selling by NOVICE and those who ignore TA. Was there an event that caused this? Sure, horrible earnings came out. Did TA predict this? NO.  What TA predicated was the stock would likely go down, poor earnings just made it happen a lot faster then most expected. Also some believe as I do that where we are in EW will indicate probable REACTION to news, IE when a 3 wave is just starting to the down side market will not react well to GOOD news and any bad news is death, the opposite is also true for new 3rd wave to upside). How often have you heard on CNN things like “bad news and the market just keeps going higher?”, or “this makes no sense the ecom looks great, we keep getting better then expected numbers and the market is tanking”, or “the stock market climbs the wall of worry”.  What is certain is this is a 3rd wave move down. Also like I said EW is often distorted for small cap stocks, and most often for high spec stocks. So it may be that the low of $1.68 will mark the low (it was clearly overdone as the close was $2.70) and after we bounce up (a 4th wave) the 5th wave of C might test and hold at $1.68 and not make new lows (called a truncated 5th which is known to happen when wave 3 is excessive) only time will tell.

What you can be sure of is the smart money that SHORTED BQI covered during the PANIC selling. Why is that? Well simple, that’s how smart money trades? Some may have even played the bounce up after the down spike. Just like when they were taking profits (selling) at $6.50 for solid TA reasons. When TA was saying the emotional money (novice) will be screaming BQI is the buy of the century, that its going to $40 smart money is selling.

So today as I make this post some shorters will be bashing the foolish novice longs on the boards, the novice will be lashing out at everybody and everything as they bleed, they will blame management, blame anything, blame poor earnings, and the game goes on while they live in total darkness. Does this mean TA is the be all and end all? NO. It means TA greatly increases the odds of making money and more importantly giving a little understanding to stock movement.

Read this post to get an idea of how a real trader thinks and operates. BQI is just one of several THOUSANDS of stocks. Some stocks follow TA well, others do not. A WISE trader trades the stocks that follow TA well. TA at its best is only about 65% correct, it’s all about playing the ODDS and using proper money management and most importantly NEVER becoming emotionally attached to any stock, or for that matter any trade.

Learning TA (candles, EMA or MADC, stochastic, patterns vrs volume) is not hard. Yes I admit getting a good grasp of EW is not easy, but the real hard part is mastering yourself.

A couple of well known things.

#1 A poor system is much better then no system

#2 two traders using EXACTLY the same system will have different results due to their internal workings.

And for the naysayers who claim TA does not work, grow up, of course it does. Maybe it doesn’t work for you, or maybe it is ignorance speaking. For the novice that got burnt listening to the pathetic compulsive hypers who are by and large CLUELESS, well LEARN. Because if you don’t learn you will remain in the 80% group. That is 80% of people who trade/invest in penny/high spec stocks WILL LOSE MONEY. And if you have not figured it out yet how the 20% think, well read these posts again.

Interested in the First Commercially Available Stock Trading Robot?

How to make money trading penny stocks PT1

I have been really taking it easy last 6 weeks. I decided to post this info that I post on ragingbull investment board. I have posted on and off their since 1999 and talked alot about TA why people loss money trading penny stocks. This is a long post and I will do in two parts.

NOTE — I started trading in 1983 and discovered technical analysis (TA) and became a student.  I mention this so you understand that my charting was with pencil and paper and therefore really needed to focus on chart patterns and stock price versus volume movements.  This is the foundation I use when charting.  In this post I talked some about Elliott wave (EW) theory. EW is complex and I would never recommend to a new trader, however I find it can be a very effective predictive indicator.

Part ONE

A LESSON in TA and trading, something EVERYONE should consider while investing…

Pull up a CANDLE chart of BQI with VOLUME, Stochastic, and MACD. Lets study the clear well defined top and I will post on the feeling I KNOW where happening on Investor Idiot board without having been there. (Years of experience using TA and studying investor psych on RB allows me to not even read the boards anymore)

Use this chart as a ref if you don’t have good charts. (below is 2 yr time frame, I also suggest looking at 6 mnth time frame as reference)  BQI 2 year chart

Look to mid June when we got a nice HIGH volume white candle. On trading above $5 this was a confirm BUY on the candle itself due to volume. Notice also the MADC, see how the blue line turns up and the red bards cut up thru the blue line, supporting indicator to go long. (You can get the same info from 3 EMA I have on the chart, treat the EMAs the same as MADC, just a different format)

We then had 7 days of high volume and mostly up. A trend pause candle formed on day 5, see bearish engulfing black candle, however the next day a nice white candle closing at the high formed neutralizing the engulfing WARNING candle.

The next day gap up followed by a large black reversal candle on HUGE (the biggest volume) volume, not only closing the gap but FAILING at the gap and closing near $6. THIS was a clear trend halt, and the spinning top often comes at MAJOR TREND PEAKS.

Ok what would be happening on the boards (news is of no importance)?

When the move started the burnt out longs will bah those that have been neutral to negative on the stock. They will proclaim lift off, that the move to $20 or $30 or whatever has started, they are letting out restrained elation, and their love has finally started moving. If any news happened they will proclaim they KNEW it was coming, this is it. If NO news came they will claim clearly GREAT news is COMING and those in the know are buying. All not important. As the runs goes more thumping and attacks on everyone who is not a pumper and claiming the stock will go to the moon. When the clear TOPPING formation occurs they will claim its a healthy pullback and now is a great time to go long if you missed the initial move, the stock is going to $40 so only WEAK hands are selling. (In fact SMART money is selling)

Ok back to the reversal candle. Notice the stochastic hits 90% and the fast line clearly and cleanly cuts down thru the slow line, and the slow flattens. This tells us the stock is clearly over bought and we will now correct that condition. This supports SELL on the close of the very bearish candle that closes at $6.10

The MADC is fine, healthy. So basically short-term traders are selling now, as are the mid term swing traders.

The next 6 days. During this time very solid indications a major top is forming. Look at the ratio of black to white candles, look at the volume. What does this tell us? Simple, I explained before, emotion, novice investors buy EARLY, as in market open, and SMART money, experienced, TA money buys/sells near the close. So the black candle tell us dump/emotion buying, and smart experienced money selling.

So of course the CANDLES/VOLUME tell us what is happening on the boards. Dumb/emotion novice are pumping to extreme, smart money is selling off and warning of a possible top.

Now look at the second trading day in July. Notice the following.

Stock gaps down, black candle forms and close at 21 EMA that has leveled out. For the first time the MADC gives a SELL since the rally started (blue line has flattened and red bars now below the blue line, this is a LONGER term buy/sell indicator that just gave a SELL).

The stochastic is clearly pointed down. A short term up trend line was breached. You now have TA selling as the mid term are exiting, the short term traders are mostly gone by this time but the last few will now be gone. SHORTING is the action now for short-term traders. Mid term are likely just going NEUTRAL and watching for end of the correction. Trend is still UP mid term, just DOWN short term.

On the boards the pumpers of course are screaming this is a GREAT buying op, the TA traders are pointing out we are at the BEGINNING of a correction.

2 days latter we touch just below $5 a major support level and bounce right back to $6 a major resistance level and that holds against a second challenge 3 days latter. We have cut out a sideways range. I posted about that.

See next of second part —-