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Using some type of scanner is an effective way to find penny stocks to play. There are many out there on the market, so I am just going to talk about a basic scan that all penny stock screeners should have the ability to detect. Volume is the single most important technical indicator that you should pay attention to if you want to trade micro caps or pennies. Equities/stocks that are traded on the big board indexes such as the NYSE and the NASDAQ all have respectable amounts of daily volume, or in other words they have a lot of money flowing in and out of them in the form of shares being bought and sold over the electronic exchange. Penny stocks do not possess this attribute as a whole. Some have an average volume each day of over one hundred thousand dollars, others are lucky to see five grand change hands before the closing bell. This is both a blessing and a curse for penny traders, since an abnormal drop in volume can equate to an unfriendly selling environment and force them to hold their shares until liquidity returns. It can amount to a long, long wait for it to pick up too. So what is it about a volume scan that can be a good thing for a trader to spot? Well, it's not an unusual drop, it's an unexpected sudden increase that can tip your hand to a play that might make you a ton of dough. A volume jump can signal a stock is going to go up or down very quickly. Let's look at a few things that can be fundamental causes of wild jumps in trading activity (volume):

Massive selling underway, in that case it would be a good thing to watch the stock and try to pick a bottom for a good bounce play Positive news release just issued, sparking frantic buying frenzy that can send a stock up for multiple hours or days A paid promoter or promoters just sent out a massive amount of emails to subscribers who purchase large blocks of shares within just a few hours of each other, otherwise known as a "pump"

My personal favorite is bottom bouncer type scenarios, where traders who own a certain stock are dumping it down to new 52 week lows in a hurry. What I look for is areas on the chart where I feel support will kick in, and then I will place limit buy orders in those price areas. More often than not, a moderate or extreme push upward occurs in that particular stock and I can sell for an easy 50 to 150 percent profit. I will play the other types of volume scans, but volume breakouts have been extremely good to me and to my subscribers. I fully expect these types of opportunities to continue to present themselves, and I fully intend to capitalize on them. You can get your hands on penny stock recommendations that adhere to the above strategies at Microcapmillionaires.com.


Written By Matt Morris, Editor of Microcapmillionaires.com the best penny stock newsletter in existence. I am one of the few penny-newsletter-guys that do not accept compensation to "pump" penny stocks. Sign up for 3 free Penny Stock Picks here.

Article Source: http://EzineArticles.com/?expert=Matt_P_Morris

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How to Pick Penny Stocks With Volume Scans