If you haven’t read our How It Works section yet, please do so before moving on to Trading Strategies.
Now that you know what the primary driver is that creates the big volume and price spikes in the penny stock market is, here are a few specific rules and strategies you can use to put yourself in a position to profit from that knowledge.
First, here are a few common sense rules or reminders:
The OTC Market is like the Wild Wild West. There is risk around every corner. Assume everything you read or hear about any penny stock is a half truth at best.
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.
Ready?? Here we go!!
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.
Think Like a Trader
The #1 trading error we see is people getting in too late and holding too long!!
The best chance to be in a position to book profits is early in the awareness 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!
If a stock heads lower, sell it quickly for a small loss.
Look at the dates of our email alert. We hear 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 was up 50% at one point and our readers are out of it already.
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 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.
Do not fall in love with these companies. These stocks should be four letters (the symbol) and a number (the price) to you, that’s it. Let everyone else fall in love with them. They are the people you are going to sell your stock to at a profit. Most of these companies will not exist a year from now. Short term trading is the only way to make consistent money with penny stocks. Sure there are a few exceptions to this but for the most part holding penny stocks long term will not work out.
All you care about is “Do I think this stock will have more buyers than sellers short term so I can profit.” Do you think other people will get excited when they hear it? Those are the stocks we want to focus on.
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 price fills.
IF A STOCK GAPS, DO NOT CHASE IT
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 sell a stock when it is 10%, 20% 50% higher, not buy it.
If you really love the story and a stock gaps up 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.
WATCH THE OPEN FOR AGGRESSIVE SELLERS
Watching the open is very important. You can learn a lot about how a stock may act in the first 10-15 minutes of the trading day.
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 until 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 see lots of buying and the price is 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 PREVIOUS DAYS CLOSE. This is the price shown in our alert.
This may get frustrating because stocks can dip before heading higher as market makers try to fake out traders but for those of you that can not afford much risk, other than not buying penny stocks in the first place (good idea if you can’t afford risk) this is a good way to keep losses small.
For those that can handle more risk, still keep the losses small. When you enter a trade, determine what price you need to sell if it heads lower and if the trade goes against you, get out.
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. Losing traders 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.
THIS IS THE SINGLE MOST IMPORTANT KEY TO SUCCESS IN TRADING.
SELL ON THE WAY UP
When entering a new trade determine beforehand where you want to get out if/when the stock goes higher. Put in a sell limit order as soon as 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.
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.
Follow these simple rules and your trading account will thank you.
Mark & Sean