If you haven’t read our How It Works section yet, please do so before moving on to Trading Strategies.
Now that you know how this market works, here are a few specific rules and strategies you can use to cut your losses and book more profits.
The #1 rule to remember about penny stocks is this: the OTC Market is like the Wild Wild West. There is risk around every corner. You have to assume everything you read or hear about any penny stock is a half truth at best. Always verify everything yourself.
Please only make small investments in Penny Stocks. No matter how good a company sounds you never ever invest money you can not afford to lose.
Having said that, there is no market that we know of offers traders a better opportunity to book great profits.
These stocks often make big price swings that the smart trader can take advantage of.
Memorize these strategies and think about them when ever you trade.
They have saved MANY from unnecessary losses and helped traders just like you to successfully navigate this market.
Ready?? Here we go!!
Think Like a Trader
The number 1 trading error we see is that the average investor gets in too late and holds on too long!!
The best chance to be in a position to book profits is early in the Exposure Campaign. Do not sit around and watch them go up for a few days and then decide to get in. It is usually too late. You will be buying when everyone else is selling!
Make sure you look at the dates of the alert. We get emails from readers that didn’t see the alert right away, get in, then ask us why it isn’t doing anything or is headed lower. Ummm, that alert was from a week ago. That stock already went up 50%. Many readers already made a lot of money and sold it like they should have.
Chances are, if the stock is not moving within a day or so it is not going to. Do not hold on and pray that it does. This is what everyone else is doing and after they see it is not headed higher and decide to sell, it WILL head lower. Get out before they do.
Once you sell a stock forget about it. Good results or bad you need to move on and get ready for the next one. Do not keep watching thinking that it is going to drop down and you will buy it again. This is a mistake unless they start another exposure campaign. If they do we will let you know.
You want to be IN ahead of everyone and OUT ahead of everyone.
Do not fall in love with these companies. Trade them to make money. If they go up, sell them at a profit. If they go down, sell them quickly for a small loss and get ready for the net one.
Your focus needs to become “do I think this stock has an exciting enough story that OTHERS will go out and buy it when they hear or read about it”.
Remember, all you care about now is “Do I think this stock will have more buyers than sellers short term so I can profit.” If the story is exciting and we know many people are going to find out about it then this is a good possibility so get yourself in position to profit from any move.
To you, these stocks should become four letters (the symbol) and a number (the price). You should not get emotionally attached to them. Let the other guy fall in love with them. He is the guy who is going to keep buying it so you can sell it to him at a profit.
ALWAYS book your profits EARLY when in a position to do so.
The Trading Rules
Always use limit orders when getting into a stock. Pick an entry price and stick with it. Never use market orders to enter into a trade. Market orders leave you vulnerable to getting poor fills.
IF A STOCK GAPS WAY UP DO NOT CHASE IT
Most stocks that gap up will come down during the day. (usually starting between 9:45 EST and 10:15 EST) When a stock gaps up the market makers will usually push it lower starting at this time to try to get investors to panic and sell shares back to them so they can make a profit on any shares they are short from filling orders on the gap. If you like the stock and it gaps up you can usually pick up cheaper shares when the market settles back.
DON”T CHASE THE STOCK!
There will always be another trade right around the corner. Don’t beat yourself up if you miss one. The last thing you want to do is over pay because you see a stock moving and think you are missing the boat.
Remember, You should be looking to make 10%, 20% 50% gains. Why would you even think about paying that kind of premium over the alert price? That’s when you the smart traders are selling out at a profit not getting in.
WATCH THE OPEN
Watching the open is very important. You can learn a lot about how a stock may act in the first 10-15 minutes after the market opens.
The first thing to look for is a lot of selling. If you are watching a stock that has an average daily volume of 50,000 shares and the stock trades 250,000 shares in the first ten minutes and it isn’t moving this is not a good sign.
This means there are lots of sellers in the stock and they are probably only going to get more aggressive as the day goes on.
This is the Wild Card when it comes to penny stocks. There is no way to tell before we do an alert if there are a lot of sellers trying to get out. We look at charts and watch the Level 2 but at the end of the day we don’t know until after the alert is sent and the stock begins to trade.
GET IN, WATCH FOR BIG SELLERS, THEN DECIDE TO STICK IT OUT OR BAIL.
You want to see a stock tick up on a regular basis as you see buys come in. If you are in a stock and you see lots of buying and it’s not moving GET OUT. Don’t wait.
KEEP YOUR LOSSES SMALL
THE SAFEST WAY TO DO THIS IS TO SELL A STOCK IF IT GOES BELOW THE PRICE IN THE ALERT. This price is always the prior days closing price.
When you enter a trade you need to determine how much you are willing to risk. Have a firm number and get out if the trade goes against you.
Every big loss started as a small loss where the investor lost control of their emotions and didn’t close out the trade. All investors have trades that go against them. It happens to everyone. Successful traders know how to limit losses while unsuccessful ones do not. They begin to hope and pray that the stock will turn around so they don’t lose money and next thing they know a small 10% loss is now a 40% loss. At this point they begin to think the stock cannot go any lower and they hang on. Now it’s a 90% loss and they finally sell. Do not let this be you. Put a line in the sand in every trade you do. When it gets over that line, get out.
There is an order called a Stop Loss Order. These orders are put below the current market and are triggered when a stock is on the way down. A stop loss order is designed to limit your loss or protect your profits on a trade.
NO ONE SHOULD TRADE PENNY STOCKS WITHOUT STOP ORDERS.
The best place to put your stops is just below the previous day’s close. This is also the price I mention in our alerts. Stops should be kept tight to limit losses; 10%-20% MAX. We should never have to hear from a reader that took a big loss if you follow this rule.
THIS IS THE SINGLE MOST IMPORTANT KEY TO SUCCESS IN TRADING.
IF YOU DON’T USE A BROKER THAT ALLOWS STOP LOSS ORDERS, GET ONE.
Here is a link to ChoiceTrade they allow stop loss orders and only $5 trading fees on penny stocks. Here is a link to open an account.
SELL ON THE WAY UP
When entering a new trade determine beforehand where you want to get out when the stock goes up. It helps to put in a sell limit order in at the same time you buy the stock. Then when the stock hits this price you are taken out and don’t have to struggle with wondering if it’s going to keep going higher. Book your profits.
You should always use trailing stops to protect your profits after a stock has gone higher. If you get into a stock at .10 cents and it runs up to .20 cents you want to protect your profits. Some people will decide to get out completely and that’s smart but some of you may want to stay in the trade to see if it goes higher. The best way to do this is to use a trailing stop. This protects your profits. A mistake that many traders make is allowing a profitable trade to turn into a break even or losing trade. Don’t let this happen to you.
Get used to booking profits no matter how small. It may help to learn to take small profits when you begin. There is nothing wrong with taking 10%, 15%, or 20% profits on trades. This gets you in a winning state of mind and makes taking profits much more of a habit. You do not need to buy at every low and sell at every high in order to make a lot of money in the market. You just need to be consistent.
Everyone wants to hit home runs when they buy penny stocks but the fact is most investors will lose more money hanging on for the big winner instead of taking consistent SMALLER profits.
DO NOT BE GREEDY. This will be the death of your trading account.
- GET IN AHEAD OF EVERYONE ELSE.
- TAKE YOUR PROFIT AHEAD OF EVERYONE ELSE.
- TAKE SMALLER CONSISTANT PROFITS, THEY ADD UP.
- DON’T BE GREEDY.
- IF THE STOCK GOES LOWER, SELL IT RIGHT AWAY. DON’T WAIT.
If you follow these simple rules you will see that the OTC market is filled with trading opportunities.
Okay now that you know How It Works and Trading Strategies, you’re ready to start Finding a Broker.