Once a stock price is below $5 per share, it is categorized as a penny stock. Frequently, but not always, penny stocks have small market capitalizations and are prone to high volatility due to low liquidity and trading volumes. Penny stocks can, therefore, provide an opportunity for large, quick gains because a small movement in the price of a penny stock can produce a large percentage gain. But they also carry significant risks compared to more established stocks. To guard against the risks associated with investing in penny stocks, the stocks discussed in this article have a minimum price and volume criteria, along with clear chart patterns and other technical analysis indicators.
Below is an analysis of developing bullish patterns in penny stocks for February 2025, pulled from a screen showing positive one-month performance, a minimum price of $1.50, and 30-day average daily volume of 200,000 shares.
All charts and data are current as of Jan. 29, 2025.
- Price: $1.50
- 30-day return: 17.2%
- Average daily trading volume: 1,798,400
- Exchange: Nasdaq
ATAI Life Sciences N.V. (ATAI) is a biotechnology company focused on advancing novel mental health treatments by leveraging psychedelic compounds and innovative drug development strategies. Following its IPO in June 2021, the company’s stock hit a high of $22.91 and then toppled to a low of $1.02 in November 2023. That low was 95% below the high and established a first bottom for a multi-year sideways potential bottoming pattern. A second bottom in the pattern was established in October 2024 at $1.03. After the first bottom, the stock of ATAI saw an 18-week, 178% gain of $1.83 to a high of $2.85. From the October low, a measured move of that advance would complete at $2.86.
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- Price: $3.09
- 30-day return: 24.6%
- Average daily trading volume: 4,228,700
- Exchange: Nasdaq
The stock of BTCS Inc. (BTCS) surged by $3.95, or 270.6%, in one week during early November, reaching a high of $5.41. A pullback followed to a swing low of $7.35. That swing low successfully tested support largely above prior swing highs and near the rising 20-week moving average. Those are signs of a strengthening uptrend. Since the low, the correction has taken the form of a potential bull flag pattern. It probably needs more time to form as each channel line has only one touch. Given the sharp rise that occurred prior to the flag forming, called the pole, there is the potential for a second sharp rally following a breakout of the flag. BTCS Inc. is a financial services company operating in the blockchain technology sector.
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- Price: $2.33
- 30-day return: 48.4%
- Average daily trading volume: 694,900
- Exchange: Nasdaq
Compugen Ltd. (CGEN) is a biotechnology company focused on cancer and immune-related diseases. The company’s stock broke out of a bull flag pattern the week of Jan. 13 and reclaimed both the 20-week and 50-week moving averages on the breakout. Resistance was seen at a high of $2.54. That was a test of resistance at the 200-week moving average. The stock of CGEN has been trading below the 200-week moving average since July 2021. This is the first close approach since then. Given the bullish implications of the bull flag pattern, it was preceded by a sharp advance of $2.50, or 471.7%. Short-term weakness could set the stage for a continuation of the bull trend and a breakout above the 200-day moving average.
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- Price: $3.11
- 30-day return: 108.7%
- Average daily trading volume: 1,010,300
- Exchange: Nasdaq
The stock of Compass Therapeutics, Inc. (CMPX) broke out of a bullish inverse head and shoulders bottom pattern in early January before reaching a high of $3.63. That high almost completed a 61.8% Fibonacci retracement of the prior downswing. Nonetheless, a retracement should lead to new short-term bullish setups, given that the bottom reversal was only recently triggered. Notice that prior to the breakout, the 20-week moving average crossed above the 50-week line, indicating a potential change in the long-term trend. Compass Therapeutics, Inc., is a biopharmaceutical company focused on oncology.
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Tetra Technologies Inc. (TTI) is an oil and gas equipment and services company. Its stock has been advancing in a rising trend channel that has stayed largely above the 200-day moving average since 2021. Recently, a bull breakout of a small inverse head and shoulders pattern triggered above $4.12. The pattern formed in a bullish position above support at the lower channel line. Other signs of strength include the 20-week moving average turning up following a reclaim of the line in early November, and the reclaim of both the 50-day and 200-day moving averages several weeks ago. Moreover, the stock of Tetra Technologies is back above the long-term downtrend line.
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What to Know About Penny Stocks
Many penny stocks trade via over-the-counter (OTC) markets, which means they have minimal regulatory oversight and little analyst coverage, making it difficult to access accurate company information.
However, the penny stocks we’ve identified in this article are all listed on the New York Stock Exchange or Nasdaq, which means they are subject to the same listing requirements as any other company on these exchanges. These requirements are intended to ensure that only high-quality securities are available for trading on the exchange.
While penny stocks are a riskier investment than established stocks due to their volatility, the potential for high returns is attractive to some investors.
How We Chose the Best Penny Stocks
To screen for penny stocks with interesting chart patterns and other technical analysis indicators, we used the following criteria. Stocks had to have positive one-month performance and be priced under $5.00. To help improve the reliability of the chart patterns, the stocks had to have a minimum price of $1.50 and an average 30-day trading volume of at least 200,000. The stock also had to have at least 24 months of trading history.
The charts were also reviewed for bullish patterns, including breakouts above trendlines, key resistance, and moving averages. Candlestick patterns were also considered, as we looked for signs that pointed to a bullish trend reversal or indications that a trend was strengthening. Still, it’s important to remember that past performance is not a guarantee of future performance.
Penny Stock Advantages and Disadvantages
The low price of penny stocks offers investors high potential for growth, and they can give smaller businesses a platform to access funding. But while these stocks can bring investors significant gains, they also carry the risk of significant losses. There are greater risks associated with investing in penny stocks than with more established stocks.
Penny stocks usually lack liquidity. It can also be difficult to find solid public information about penny stock companies that trade over the counter. Given the additional risks, penny stocks are not suitable for all investors, especially those with a low risk tolerance.
Another disadvantage is that the price patterns may take longer to unfold and single-position drawdowns can be larger than normal, given the higher potential volatility in low-priced stocks.
There are ways to mitigate the added risks, starting with raising the minimum price and average trading volume and selecting penny stocks that trade on the NYSE or Nasdaq. Overall portfolio risk can be contained by allocating only a small amount of total capital to the penny stock market.
By carefully screening, watching, and waiting for price patterns to unfold, investors can access a market environment that has the potential for large gains in a relatively short period of time. But that depends on entering a position at the right time.
The Bottom Line
Penny stocks have the potential to sometimes see sharp multi-week or month rallies that, on a percentage basis, exceed expectations. They can present opportunities for investors that are difficult to find otherwise. This article features five interesting charts of penny stocks that had advanced during the prior 30 days and showed upside potential, given the presented technical analysis.
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As of the date this article was written, the author does not own any of the securities listed above.
