Follow the 3/2 rule to avoid buying high.

Many years ago, when I first started investing in penny stocks I bought a company called Carmanah at $.75 cents as they were a local company and I thought Solar Energy was something to invest in.

A few days later I bought a company called Diamond Fields. Everyone was talking about how they were collecting diamonds off the sea floor and the share price was moving up quickly.  I was determined to get in on the action as everyone on the stock forum I was following said this was just the start, so I jumped in at $.39 cents.

A few days later Carmanah's share price jumped up to $.85 cents, bounced around a bit and stayed above $.80. Diamond Field's share price on the other hand dropped for 2 days in a row, bounced a bit up then fell again, settling below $.30 cents.

I hung onto both stocks and after a month sold Carmanah for around $1; six months later I sold Diamond Fields at $.41 cents. I made money on both, but one took only a month to return a great gain while the other took six months to return an ok gain.

Although there are many factors that go into why the difference in time it took to realize a profit the overriding factor was the timing of when I bought.

After researching and studying Technical Analysis and Candle Stick Charting I came to realize the Carmanah stock price was building a base and was starting to trend higher where as the Diamond Fields stock price was overbought. (The Red Line indicates where I purchased the shares)

Diamond Fields	Carmanah

Before buying any stock now I look for the chart pattern on the right as odds are the chart pattern on the left will end up looking like the chart pattern on the right in a few days. There are always exceptions to the rule, but statically it has been proven after 3 days of increasing volume and strong stock price movement higher, the stock price will pull back for 2 days allowing for a better entry point.

Have a look at stocks tomorrow that have been running for 3 days and have a similar chart pattern to the one on the left, then check back 3 days later and see if the chart pattern now looks like the one on the right.

Note: Often as not a stock will run for 3 days, with a slight pull back before moving another couple of days, so it not uncommon to see a move last more than 3 days.

*Note: There are always exceptions when it comes Technical Analysis and this applies even more  to penny stocks, which can be easily manipulated and is why many professional Technical Analysts will discount using TA with penny stocks.