Buying Penny Stocks: A Textbook Example

I was waiting for a good example to show everyone the power of knowing what to look for when you buy penny stocks, and I believe I've found it. Actually, examples like this abound in the markets, I've just been too busy to do a lot of research lately outside of the stocks that I picked a couple of months ago.

Axesstel (AFT) was one such stock. I found AFT while doing a screen for AMEX stocks that were trading for $0.25 or below. This was back in February...I actually wrote it in my notebook that I have for stocks that I'm keeping an eye on. Here's what I wrote about AFT on 2/8/08: "AFT--Large sell-off (1.5 MM shares in a day) back in Dec. '07; quiet action since then; small trading range on low volume w/ nothing above $0.40 since Jan. '08; holding steady at or below $0.30/share for a solid month; closed @ $0.25". It took me a grand total of ten minutes to identify this stock, understand its current position and price action, and then make notes on whether or not I believe it had potential. The sucky thing about it is, I never made a move on this stock, because my capital was tied up elsewhere. Long story short, since February 8th, 2008, here's what happened to AFT:















I know that the image is not very clear, but I believe you get the picture...that sucker closed at $0.80 today!!! I'm not making this up...go to Big Charts and look it up for yourself if you're skeptical. $0.80 is a little over THREE TIMES the price that AFT was trading at when I first spotted it. Would you like to make 300% on a stock??? You see my point now, why trading penny stocks according to chart patterns is one of the most profitable investment ventures you can get into?

Notice the chart pattern I'm talking about, from December of 2007 into the first few months of 2008. The stock endured a large sell-off at the beginning of December, which more than likely was the public jumping ship due to the rapid decrease in the stock's price. Something psychological happens when a stock breaks below $1.00 a share, and most people aren't ready to handle that level of price, so they normally close their positions in a panic as soon as they can. The thing is, this is where the most money can be made, to the astute chartist.

Notice that after the mass sell-off in December of 2007, there was a period of roughly 4 months where the price action on the stock was very quiet, the volume was low, the trading was smooth and not erratic at all, and there was strong support at around $0.25 a share. All of these factors combined were basically proof positive of an impending move up. Once the stock started "percolating" around $0.40 a share, it was only a matter of time before the true breakout was going to take place..and it did. The rest is history.

AFT still doesn't look like a bad stock to get into, because even now there looks to be a symmetrical triangle shaping up--in an uptrend, which is usually a sign of a further move up once the "hesitation period" is over.

Never doubt what you see on the charts, regardless of what advisors and brokers and pundits and lions and tigers and bears may be saying. This, my friends, is how you trade penny stocks.