Taking a position in a penny stock takes a unique type of trader. As the name suggests, buying and selling shares for less than $1 comes with an ample amount of risk and volatility. It’s not uncommon to see these types of positions fluctuate by more than 10% or 20% in a single day, which means this type of trading is definitely not for everybody. Unfortunately, many traders get involved in penny stocks without doing their research and end up experiencing significant losses. Even those with lots of experience understand that there is a risk of total loss when trading micro-caps. With that said, in the article below we’ll take a look at several penny stocks that are trading within an interesting chart pattern and try to identify areas that traders would be able to use to minimize the risk when setting up a trade. (For more, see How to Invest in Penny Stocks .)

iBio, Inc. (IBIO ) is a tiny biotechnology company that focuses on the commercialization of its proprietary plant-based protein expression technologies. It just about goes without saying that when you combine biotechnology and penny stocks the natural outcome is extreme volatility so selectively choosing an entry and exit point is extremely important. (For more, see: Biotechnology Stocks to Keep on the Radar .)

Taking a look at the chart, you’ll see that the price has recently retraced from its swing high of $0.81 and is currently testing the support of its 38.2% Fibonacci Retracement level. As you can see from the price action in February and March of this year, the 38.2% level has acted as a level of support in the past and traders would expect this to be the case again. An entry as close to $0.50 as possible would be strategic. The key here will be for active traders to remain ready to close a long position if the support isn’t able to hold. (For more, see: How to Pick Winning Penny Stocks .)

U.S. Geothermal

Taking a look at the chart of U.S. Geothermal, Inc. (HTM ), you’ll find that it’s currently testing a significant level of support. Notice how the trendline has propped up the price of the stock over the past eighteen months. Bullish traders will look to enter a position between $0.499 and $.051. A close below the trendline will void the trading setup. In addition, traders will want to keep a close eye on this stock over the coming days because trading action near major support/resistance levels generally comes with extremely volatility. (For more, see: Interpreting Support and Resistance Zones .)

Minco Gold Corp. (MGH ) has been one of the most popular penny stocks so far in 2014. The strong move early in the year has set the stock into a sideways consolidation pattern. At this point, the price action is caught between two horizontal trendlines. so it’s difficult to predict the direction of the next leg. Traders will want to keep this stock on their radar because a move beyond one of the trendlines will trigger a flood of orders and with it create a tremendous trading opportunity. (For more, see: Spotting Sharks Among Penny Stocks .)

The Bottom Line

Trading penny stocks is definitely not for everyone. Yes, extreme price movements can lead to huge gains, but unfortunately the more common story is for rookie traders to wind up with significant losses. Strategic planning when it comes to entry and exit positioning is imperative and one should never place an order without having specific targets set beforehand. (For more on this topic, see: 3 Penny Stocks Worth Your Attention .)