7 Steps to Greatness
Dear Penny Stock Millionaire,
On Thursday I gave you a quote from Abraham Lincoln. Today’s inspiration is from another one of America’s finest. “An investment in knowledge pays the best interest.” – Benjamin Franklin.
When it comes to the stock market, as with all areas of life, knowledge is power. The more you learn the better you’ll be. That’s the reason that I write articles like this. I want you to be well equipped with all the tools that you will need to be successful. The more knowledge you have, the more you learn, the better you will be.
Yesterday, I gave you four initial steps that you would need to take if you want to play the markets.
Today, I’ll pick up where I left off and give you seven more steps to round out your education and build you a foundation for investing with confidence.
#1 Do Not Use Leverage
This is extremely important: Do not use leverage.
As soon as you open a trading account your broker will ask you if you want a margin account. Unless you really, really know what you’re doing and need a margin account for short selling, say no!
Trading with leverage means you make trades with borrowed money. Start with $25K … borrow another $25K … and you have $50K to trade with. Sounds exciting, right?
But what if you make a trade and lose $40K right out of the gate? That’s right, your broker will call you and ask for enough money to cover your margin. It’s called a margin call (another term to know). That means you have to come up with another $15K just to break even. Ouch.
And it only gets worse as your account grows. Don’t do it.
Instead, learn to trade the right way. Learn to mitigate risk and cut losses quickly. Learn all the ideas I’ve been trying to teach you for however long you’ve been reading my posts, watching my videos, and learning my strategies.
#2 Trade Volatile Stocks
I touched on volatility a little already. I love volatility. It means there are buyers and sellers and prices are going up and down. The reason I love trading penny stocks is because of the extreme volatility combined with big percentage moves!
In other words, if a stock is trading for such a low price, say $1 per share, then a 20 cent move is 20%. That’s huge. You aren’t likely to find that even in most small-cap stocks, and certainly not in large-caps.
Volatility might seem a little scary at first, but learn to embrace it. One way to learn about the volatility of a particular stock is to …
#3 Create a Watchlist
I wrote a post about how to create a watchlist. Whether you want to trade or you’re a long-term value investor, you should always have a watchlist.
You need to do your homework about the stocks you want to buy. Period. Would you go buy a television or smartphone without learning something about it?
Some people do. But I wouldn’t.
#4 Paper Trading
When you paper trade, you make imaginary trades, and the software treats it as if it were a real trade. Your account goes up and down just as it would in real trading — but you’re using fake money.
Paper trading is awesome and I hope you do it. Use your paper trading time to learn your set-ups and burn the knowledge into your brain.
Remember that quote from Lincoln on Thursday? “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
Sharpen your axe.
#5 Learn From Your Mistakes
Learning from your mistakes is a key to success in any area of life, right? When it comes to trading it can mean the difference between being rich and an empty account. If you make a trade and it goes wrong, don’t just forget about it and carry on!
Instead, examine the setup, look again at the news, see if you had the right entry point and exit point. In other words, use it as a tool for learning.
I can’t use the phrase ‘get rich quick’ or my lawyer’s head will spin around all Exorcist-style. So I’ll say this instead: If you want the key to getting ahead in this game, learn from your mistakes.
#6 Master Your Analysis Skills
One of the basics of investing in stocks is to understand how to analyze stocks.
You have to be able to look at a chart and see what’s going on. You need to know why things are moving — or at least have an educated guess.
There are two main types of analysis. Which you prefer depends a lot on your strategy. But you should learn both if you’re serious about trading or investing.
Technical analysis is all about reading stock charts and using key indicators. You’ll learn about things like moving averages, support and resistance, and pivot points.
For most patterns I trade I don’t use more than a few key indicators combined with identifying a catalyst. A catalyst might be something like a press release or earnings announcement.
Fundamental analysis is more concerned with the underlying fundamentals of the company.
- What is their revenue?
- What’s their earnings projection?
- How much debt do they have?
- What is their growth projection?
These things can affect stock price. Long-term value investors usually focus on fundamentals. I focus more on the technical side.
#7 Never Stop Learning
As you can see, there’s a lot to learn — and I’ve barely scratched the surface.
I suggest you go through each of these 11 steps and see what you can do today. Start a watchlist. Begin to identify your risk tolerance. Search for information on stock analysis. Get a notebook and start keeping track of what you learn.
Consider this deep work. Set aside time each day to focus on learning. No distractions. Step away from social media, the television, your phone. Take notes. Keep building knowledge.
You might be amazed at how fast some of this starts to make sense. You’ll also discover where your knowledge gaps are.
The Bottom Line
I hope the steps that I’ve outlined over the past few days helps you to get started right. You should have all the tools that you need to create the stock market basics habits that all my top students have.
Come Monday, you can get started applying these tips. Open an account where you can paper trade, and the habits you develop using what I’ve outlined will benefit you in the long run.
I also hope you understand you still have your work cut out for you. You can’t cheat success.
But, you can create habits that will get you there and help you avoid the pitfalls that so many traders fall into.
Editor, Penny Stock Millionaires