Looking at Penny Stock Levels
In determining the best prices to buy your chosen penny stocks, you might want to look into the support and resistance levels of your penny stocks. One should be intelligent not only in finding the right penny stock but also the right time to buy these penny stocks and the right range of prices. Using a modified technical analysis, which consists in looking at price charts and patterns, can help an investor in buying the right penny stock at the right time for the right price.
Support Level
The support level of a penny stock is simply the floor of its price. This means that once this support level has been established, the price of the penny stock rarely ever goes below this price. There are many reasons why a penny stock has a support level. One of the main reasons is because of the buyers themselves. Investor speculation has created a buying pressure on the penny stock thereby creating a floor for the penny stock price. One can see this support level by examining a price chart over a period of time. Support levels that are caused by buying pressure are usually nice, round numbers, such as $2.00 or $1.50 or $1.00 instead of $2.38 or $1.27. Another way in which a penny stock gains a support level is because of a corporation’s buy-back program or policy. A buy-back policy means that when a corporation sells its stock in the market it announces that after a certain period of time the corporation has an intention of buying back its own stocks. They then set a minimum price for this. This minimum price then becomes the support level of that penny stock. It is a good idea to buy a penny stock at its support level because you know that it won’t go lower than its support level. You become aware of how low a penny stock price would go. Buying at the support level or just above the support level can also minimize your risk of losing your investment due to a price dip and it also gains you the opportunity that your penny stock price would increase over time. However, bear in mind that even support levels can fall due to some circumstances. Also, a penny stock may have different support levels.
Resistance Level
The resistance level, on the other hand, is the highest selling price of a penny stock over a period of time. It is the opposite of the support level and can be considered the penny stock’s price ceiling. Knowing exactly where the resistance level and where the support level is can help an investor to profit much. They can buy the shares of penny stock at the support level or a little above the support level and hold on to their penny stocks until the price reaches just below the resistance level where they sell their stocks for profits. Just like support levels though, resistance levels can fail too.