Hot Tips and Tricks for Day Trading
Dear Penny Stock Millionaire,
Penny stocks are tiny little companies with prices under $10 a share or so. The companies themselves are often total bullshit — and since they’re so small, a single news story or rumor can send prices skyrocketing or collapsing.
Maybe that sounds scary, but if you know what you’re doing, and what to look for, penny stocks could be right for you.
The best way I know of to take advantage of the volatility of these bullshit penny stock companies is through day trading. Think about it. If you believe a company is doomed to failure from the start, the last thing you want to do is invest in it long term. If you’re invested long term and the stock tanks like its bound to you lose big time.
But if you are opening and closing your trades all in the same day, you minimize your risk since you are watching the stock price so closely.
So how do you do it?
Day Trading Tricks and Tactics
- Be happy to take small losses. Never let a small loss turn into a big one! If you keep them small, it’s often easier to let your winning trades more than make up for the losses.
- Start small until you have confidence in your strategy and properly learn how to day trade. Don’t swing for the fences before you know what you’re doing.
- Don’t use leverage. The number-one killer of trading accounts is leverage. You simply don’t need it. Don’t be greedy!
- Only trade stocks that are moving. It’s no use tying up your capital in stocks that go nowhere — just don’t do it.
Technical Analysis and Chart Patterns
When we trade longer term, it’s often a good idea to consider the fundamentals of a company — things like the company balance sheet, sales growth, earnings, etc.
Those are factors to consider in fundamental analysis, but they aren’t that important for day trading. Day traders are more concerned with technical analysis. Here’s why …
Day trading relies on rapid price movement within the day, which basically means a bunch of traders piling into or out of a stock, pushing the price up or down. That’s why day traders tend to rely on price action, chart patterns, and Level 2 order flow quotes. These are all facets of technical analysis.
Rather than fundamental stats, it’s more important to know where traders are looking to buy or sell, whether that means prices breaking out of an all-time high, prices collapsing down out of a trading range, or even just seeing a ton of buyers bidding stocks up on the Level 2 quotes.
The only real fundamentals that play a major part are news catalysts, where a news article or company announcement create action in the stock — be aware of these.
Finding the Best Stocks to Day Trade
OK, let’s say all your research is done. You have some patterns you want to trade and a watchlist of stocks with news stories that could send their prices crazy once the market opens …
That’s a lot of stocks and information to keep track of … what do you do?
Back in the old days, it meant clicking between 15–20 sites, loading up clunky charting programs and waiting for crappy websites to load. Believe me when I tell you that it sucked.
New traders are fortunate that there’s software (aka trading platforms) for all that now. That’s why I always say there’s never been a better time than now to be a trader.
Stock Screeners have made all of that a thousand times easier. Find one that you like, whether paid or free, and use it to help keep yourself organized. It will help you pare down thousands of options to a manageable number that you can research appropriately.
Risk Management and Stop Loss
Fact: You will have losing trades.
Any “guru” who claims they can help eradicate your losses is flat-out lying to you.
That’s why it’s crucial for you to learn how to manage your risk when day trading — don’t trust anybody else to do this for you!
Managing your risk means making sure you only lose small amounts of money when you’re in an unprofitable trade. Your goal is for the profits from your winning trades to more than make up for your losses.
The simplest risk management tool is a stop loss order. This is normally an order with your broker to get out of a stock at a certain price if you’re losing money on the trade, but it can also be a mental stop, where you make a commitment that you’ll exit the trade at a certain price.
Always use a stop. I don’t care what anyone tells you — ALWAYS use them.
Best Broker For Day Trading
Over my 20+ years of trading, I’ve used dozens of brokers, maybe even more than that. Let me tell you, not all brokers are the same.
I stick with bigger brokerage firms with lots of capital backing — and they must be insured by the FDIC. The last thing you want to do is use a cheap offshore broker who might run off with the capital you’ve deposited.
It’s important to have a brokerage firm big enough that they’ll have shares to short if/when you need them, and while you don’t want to pay higher commissions than you have to, the cheapest firms generally aren’t the best.
Here are a few examples:
TD Ameritrade is a great broker if you’re just starting out and ready to get your feet wet. They’re one of the most well-known brokers and they have the credibility that comes with being such a big name.
There’s no platform fees and no minimum account requirement, so I’d definitely consider them if I were a newbie.
E*Trade is one of my most used brokers and they’re great for day traders with smaller accounts. Their commission rates are similar to TD Ameritrade but have a slightly easier to use interface.
Both these firms are great, so there is no wrong choice.
The Bottom Line
No matter what trading strategy or timeframe you pick, if you’re not constantly learning and developing your skills, the odds are against you succeeding. This especially applies to day trading.
When I started out, there was hardly any educational information out there. I wish I’d had someone to help me figure out how to day trade. I had to figure it out the hard way because there weren’t any great resources out there.
I want to make trading more accessible to others by becoming that resource for aspiring traders.
That’s why I write these posts. I want to share the knowledge that I have built up over the last 20 years of trading to help you avoid the mistakes I’ve made, and jump start your trading career.
Editor, Penny Stock Millionaires