How To Trade Penny Stock Charts Using The SAR Indicator

I have been receiving numerous emails about trading penny stocks with charts and the actual validity of technical use in the OTC markets. There are many that would argue they are not valid due to manipulation and I would argue that most of the markets, even the big boards are for the most part manipulated but that’s a different subject.

Today I wanted to cover a simple trading tool that when used can help you identify reversals in market trends. Let me start by stating I do not view myself as a technical expert and as I learn I dont mind helping others spot trends and patterns that I have used to help me become a better trader. Thats the name of the game right. Perfect your systems and self discipline to become better at trading, i.e. making money.

Today I want to cover the Parabolic SAR or commonly referred to among us traders as a SAR. The SAR quite simply means to stop and reverse. Now I am not going to get into the scientific formulas on how this works but wanted to touch base on this to give you guys something to study and begin following in some of your own plays and become familiar with.

Its important to note that as with any indicator, you should not buy and sell based purely on just one indicator. Used in conjunction with other indicators, these tools can help you make better decisions on when to enter and exit a position.

So lets review the SAR in the trading of GBGM. The SAR on my chart is the white dots (not the dashed lines) that is either trending above or below the candle sticks. When a SAR flips bullish (From top to bottom) you will see a significant change in the trend, this is referred to a Bullish SAR Flip. In contrast, the Bearish SAR Flip works in the same manner. Notice after the candle trend had continued to trend higher and higher after many trading sessions and the chart began to reach a significant resistance point in the .02 ranges we encountered some heavier selling and profit taking. Once the PPS dropped below the lowest SAR dot, it flipped Bearish, or bottom to top. This signaled a reversal in trend, and correction began to take place.

Its important to note support and resistance lines in the chart correction because that is a good place to add to your position or watch to ensure that the chart holds because lets face it, gravity takes over at times on these penny stocks and they become very volatile. At the time of this review, the PPS has found support and appears to be trading sideways in a consolidation pattern above the 50 SMA which is what we want to see.

As the chart consolidates notice the SAR continues to become lower and lower on the daily chart sessions. If support continues to hold, or the pattern continues to go sideways, the SAR continues to drop lower and closer to the candles. This is something to keep any eye on and can trigger another Bullish SAR flip.

Keep in mind this is just one indicator to study when trading charts but it is a strong tool that I have used for many years and once you master it, you can reap the benefits. Think of the SAR as the charge signal in the battle of the Bulls vs Bears. Depending on the direction it flips, you have a good indicator of which way the chart will begin to trend.

As always, my thoughts are just my opinion, and shouldnt be taken as financial advice. Please do more independent research and test what you learn as you go and grow into becoming the best trader you can be.