Is Technical analysis relevant for Penny Stocks?

Technical Analysis


A penny stock is a stock trading at a very low price usually below RS 10 or if the company whose market capitalization is less than RS 100 Crore. The term penny stock originated in the US for stocks which was trading below $5. Penny stocks are highly speculative hence exchanges put most of the penny stocks in T2T category leading to delivery of shares so that there is no speculation.

Technical analysis reliability increases with the increasing amount of trading volume that generated the pattern. Penny stocks have low trading volume due to less investor activity, meaning fewer trades, hence majority of the technical analysis wouldn’t be consistently reliable. In general you can apply technical analysis on any stock but each stock and each situation is very different and the effectiveness of various indicators can vary significantly from stock to the other.


Suchetha, I am a new trader , yet learning abc . But I have the similar view , I am going to pin-point some good stocks in a few weeks & would buy few. Use same method to scan we use for all other stocks but rely on your findings. Study deep for a week or so before deciding to buy. I assure you , you will definitely get go or no go signals during that period.

Hi Suchetha,

Technical Analysis is an art in which charts are studied to understand the Supply and demand in any particular stock and it can be applied to any stock be it Large cap, Mid cap, Small cap or Penny stocks.

I very much agree with​ that while applying technical analysis to penny stocks you will observe that they are thinly traded, having very weak charts that will clearly depict no major trading oppurtunity. But yes, you can apply technical analysis to these stock charts as well and you can draw meaningful interpretations about the demand & supply.

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Iam also a new trader & I wanted to search for some penny stocks which can be multibaggers… If I came across some stock,I would buy it blindly,then I came to know about I searched the co in & see all is ratio & then decide. By this method I have shortlisted some co.

i wonder how could the penny stocks (pump and dump stocks) clear and pass the listing criteria norms and IPO norms conditions , as prescribed and laid down by the exchange and sebi ?

TA works on any financial instrument. But I would rather suggest you to trade only on news or some kind of catalysts as penny stocks are highly manipulated.

So it’s always better to go with the manipulation and see if you can capture some profits. But if you are looking for long-term investment in a penny stock you are mostly gambling. And for God’s sake don’t hold any overnight positions unless you’re absolutely sure of what you are doing.