Your Penny Stock Must-Haves: Part 3
Here we are. The final installment of my 3-part countdown. But before we dive in, I just want to remind everyone that yes, you can truly work from anywhere.
I really enjoy the nasty messages I get from my haters and doubters who say it’s irresponsible for me to promote such a “lifestyle”.
They mistakenly believe anyone involved in the market should work in an office on wall street or some other big city.
They claim I’m just “selling the dream”. But newsflash, thanks to our hard work and no-days-off mentality, my top students and I are actually living it up with the laptop and smartphone lifestyle.
There’s a new world order with the digital revolution upon us. So you must adapt…or perish…
By following my Top 6 penny stock must-haves, you too could be a success story.
#6 Be Able to Go Both Long and Short
In my early days of trading, I didn’t know anything about shorting stocks. Shorting is a more advanced strategy.
Going long means you open a position expecting the stock price to go up. When it goes up, you sell for a profit. This is what most people think of when they first consider becoming a trader.
Short selling is different.
You expect the price to go down. You borrow shares from your broker and sell them right away. Then, assuming the price drops, you buy shares at the lower price to pay back the broker. Your profit is the difference between the shares you sold and the shares you bought.
Sounds cool, right? Except you can lose more than your original stake if the price goes up and you have to cover the difference by purchasing the shares at a higher price.
I believe you should be able to go both long and short. Being versatile in this way means you can play in different types of markets. You can take advantage of those pump-and-dumps and morning panics.
#5 Focus on Risk-Reward
With penny stocks, it’s not just “what’s my risk?” It’s also “can this news keep spiking this stock?” It’s risk vs reward.
What’s the potential downside and what’s the potential upside?
No stock is ever worth throwing in the towel on your risk. I miss so many run-ups because I’m unwilling to chase. Once you start chasing, once you throw your risk measurement out the window, you can’t protect your downside.
That brings me to my next trading rule …
#4 Never Fall in Love With a Stock
That penny stock you think is gonna be the next Microsoft? I’ve got a hot tip for you: it’s not. Most of these companies will ultimately fail. That’s why they’re listed on the OTC markets or priced so low.
Look, we all want to find the next big thing. But get real — you’re a trader (or becoming a trader) to create a lifestyle for yourself. The chance that you’ll stumble on the next big thing, the ‘one-stock retirement plan,’ is like zero percent.
By all means, find interesting companies with cool product ideas. But don’t buy and hold that stock hoping it will go from $1 to $50. That’s just asking for trouble.
Does it happen? Yes, of course. But in the meantime, you could be trading and building your account instead of hoping.
Hope is not a trading strategy. Well, it kinda is … but it’s a losing strategy.
#3 Don’t Let Your Ego Get in the Way
This goes along with trading rule #4:
Ego is your enemy. Approach trading like a Zen master.
Seriously. Find some peace in the process: Stick to your plan and get out when it’s appropriate.
If you let your ego get in the way, you’ll make trades you should never go near. You’ll stay in positions hoping for something to change. You’ll chase trades either to feel the adrenaline rush or with the hope of getting even. Stop that. That’s bad.
#2 Every Trade Is a Lesson
It’s a hard fact: You will lose some trades.
So what should you do when you lose? Figure out what happened. Learn the lesson. What about when you win? Same thing: What happened, why was the trade successful?
Keep a trading journal. It will become your record of the ‘how and why’ of every trade you make. It will also help you become a self-sufficient trader much faster.
If you haven’t started trading a live account yet but you are paper trading, start your journal now.
#1 Cut Your Losses Quickly
This has always been and will be my number-one trading rule. Cut losses quickly. This is paramount!
Recently I made three trades with the same stock (Nasdaq: MRIN). The first trade went perfect and I made a profit of $2,847. I made a video lesson about it — you should check it out.
The next day I traded the stock again but it didn’t do what I expected. Instead, it was a loss of $330. The same day I tried again: another loss of $196.
My point? I cut losses quickly when the trade went the wrong way. The profit from the good trade was much bigger than the small losses. Protect yourself!
The Bottom Line
These 17 vital penny stock trading rules should always be something to consider as you trade. You want to commit these to memory. Meticulous competence.
Print this out and review it daily. At the very least, bookmark it and review these trading rules every day until they make complete sense.
— Tim Sykes
Editor, Penny Stock Millionaires