My 9 Mistakes You Do NOT Want to Repeat
I wish I could tell you that every move I’ve made as a trader was perfect, but I can’t…
I’ve taken my losses, just like the next guy.
But the thing is, I don’t see these losses as a bad thing. Sure, they’re not fun, but they’re also the best way to get better as a trader.
Of course, you shouldn’t make mistakes if you don’t have to. That’d just be stupid!
Instead, I want you to learn from the mistakes I’ve made in the past. Use all of the following lessons I’ve learned to save yourself time and money.
Riding Your Losers
This isn’t a huge mistake for me because I’ve been somewhat successful cutting my losses fast, but sometimes I have let losses grow because I was too bull-headed to exit the trade.
Don’t let your losers ride.
It’s not fun, but small losses hurt a lot less than big ones.
Simply admit that you were wrong, get out, and just move on.
You Don’t Use Stop Losses
If you aren’t good at cutting your losses yourself, stop losses will make sure you get out quickly.
Obviously, penny stocks are volatile, so if you’re going to make sure you keep your losses small you need to use stop losses.
Some people recommend a stop loss of 5%-10%.
You might want to go a little riskier, but never let your losses grow to 30% or $40% or 50% or 70%.
This is important: I do NOT use automatic stop loss markers. Why? Because market makers can see your orders and move the price to that level…then back up just to take you out and earn commissions.
Instead, I use mental stop losses so market makers can’t see my “say uncle” point. But you have to be disciplined if you’re going to use this more effective tactic.
You Don’t Play to Your Strengths
After some time in this game, you’ll discover what you’re best at.
Maybe you like to play pump and dump run-ups…or maybe you prefer to short sell like me.
Whatever it is, once you find your strong suit, stick to it. You can always try a new path, but focusing on one approach and getting really good at that technique will help you make more profit—faster—than if you’re constantly running around trying something new.
Expecting Steady Profits
Pennystocking isn’t like other professions.
This is not a salaried job where you earn $5,000 dollars a month. In fact, you might not earn anything. I used to have trouble getting leases on apartments because my income is so unpredictable.
Trading gains aren’t steady, so you’ve got to watch out for trying to force opportunities to make them steady.
If you made $5,000 dollars last month, don’t say, “I have to make $5,000 dollars this month to match last month.” NO. You have to wait for opportunities.
Some months, you make $20,000 dollars. Some months, you make $500 dollars. Other months, you won’t make anything.
There are times where I haven’t traded anything for 3 months at a time, just because there aren’t any good opportunities.
That’s how you have to think of things. You have to say, “Wait a minute—there isn’t anything good here.”
Trading is all psychological, so when you create these opportunities in your head, they’re usually wrong and not worth exploring.
Getting a Big Head
There is no room for ego in trading.
Obviously, I have a massive ego, haha! I made too much money when I was too young and it came back to haunt me.
No matter how much money you make, though keep everything in perspective (or, at least, try to).
The market will cut you back down to size when you take too large of a position…when you try and force an opportunity…or when you trade in a stock you know nothing about.
Betting Too Big
Risk 1% of your portfolio…risk 10%…but don’t do much more than that until you have more experience.
Think about the way mutual funds operate. Their managers never put more than 5% of their assets in any one thing.
Why should you do any different?
Remember, you can never be 100% certain which way a stock is going to move. Protect yourself and your ability to keep trading by limiting the amount of money you risk on any given play.
Don’t Short Sell Stocks Under a Dollar
I don’t care if the stock has run up from 1 millionth of a penny. Sometimes, it seems like easy money, since stocks can go up so quickly, but it’s just not worth the risk.
A stock that’s gone up from $0.05 to $1 dollar might be up 20 times in a few days or a few weeks, but it can still go to $5 dollars or $10 dollars. Don’t sell short too early — under a dollar is always too early.
You Trade Illiquid Stocks
Be careful about getting into a stock that’s going to be difficult to get out of — especially if you’re planning to take a large position.
If a stock only trades 5,000 shares a day, what’s going to happen if you need to get out of 1,000 of them?
I don’t care how small your account is, you’re never poor enough to deal with a stock that trades 5,000 shares a day.
Play stocks that have millions of shares. Just trust me on this one.
You Go it Alone
You can learn how to trade penny stocks on your own, but you can also speed up your education if you learn from somebody who’s been there and done that.
Think about the top chef in your city.
Do you really think he got there by messing around in his kitchen at home?
Of course not!
He went to culinary school and then worked his way up the ladder, learning from everybody around him.
Traders, like any professional, can benefit by learning from those who’ve gone before them.
So there you have it. Learn from my mistakes so you don’t have to make them yourself.
Editor, Penny Stock Millionaires