I was on Twitter for a second yesterday and a came across an interesting tweet from Timothy Sykes……
When shorting penny stocks, it’s so key to wait for these afternoon fades and ideally the taking out of the morning lows, remember this!
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An afternoon fade is one of a penny stock trader’s best friends when short selling penny stocks. It is one of my favorite short selling patterns because it’s VERY predictable.
So lets get to the basics: What is an afternoon fade? An afternoon fade is when a penny stock gradually (sometimes sharply) comes down off its highs of the day and keeps making lower lows for the day. Keep in mind we’re only looking for afternoon fades in penny stocks that are hyped, manipulated to 75%-300% gains in 1-10 trading days.
What happens is during the morning hours of trading there’s a ton a volume and volatility in these types of penny stocks because of news, hype, promoting, message board pumping, etc. Then what happens is by the afternoon time everything kind of calms down from the morning spikes and all that craziness and these particular penny stocks start trending gradually downwards because the momentum drains out and volume is lighter from that in the morning. A key to spotting an afternoon fade is when your targeted hyped penny stock begins to make intraday lower-lows OR goes below the morning lows – during the afternoon. Here’s a chart diagram that shows a picture perfect afternoon fade (from yesterday actually).
Afternoon fades are very predictable pattern to short because there usually just isn’t enough volume to turn up a penny stock turning downwards..traders just kind of go with the flow. Because of this its less risky because of the non-volatile factor. For you beginners just getting into or wanting to get into shorting penny stocks, I suggest you try to short these types of patterns first because it’s less risky. Then once you get your feet wet you can began to short this amazing pattern.
{ 2 comments… read them below or add one }
As a buyer, afternoon fades have bitten me more than once, and this pattern has greatly influenced my trading style for the greater gains. Thanks for writing this piece.
In my opinion, one good investing strategy is to short the particular penny stocks that have risen dramatically in price in the short-term. Can anyone help me locate websites that discuss short selling penny stocks?