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Dear Penny Stock Millionaire,
I don’t usually take three trades in a day. It’s pretty rare. But I did on August 15, and it’s a great example of trading your plan vs. hold and hope. It’s also a great example of cutting losses quickly.
This simple rule has massive ramifications for your account, your wealth, your confidence… and your sanity. But you have to stick to your plan.
Check it out…
I’ve been seeing a lot of speculative spikes lately — so I’ve tried more speculative trades. About a month ago on August 15, my first two trades were speculative. I was wrong on both of them.
Xunlei Limited (NASDAQ: XNET)
XNET was an earnings winner. Earnings winners have been spiking lately. I was going for the morning spike — but it failed. I bought on the thesis it would go red to green on the day. It didn’t.
(Red to green means the stock moves above the previous day’s closing price. Many traders see it as a psychological barrier, and when it happens, a stock can spike. It’s an example of a stock trading self-fulfilling prophecy.)
Take a look at the XNET chart showing my entry and exit:
As you can see, XNET held its gains from the previous day’s earnings spike. Again, some recent earnings winners have been spiking for multiple days. When it failed, I got out.
So I traded my plan, lost, and cut losses quickly.
Patriot One Technologies (OTCQX: PTOTF)
PTOTF had what I thought was a big catalyst. They announced a partnership with Johnson Controls (NYSE: JCI). JCI is a $30 billion-plus company. The long-term PTOTF chart isn’t great. But when you have a little company partnering with a $30 billion company — that’s huge legitimacy.
Plus, there was a quote from someone at Johnson Controls in the press release. It’s usually a big deal when the big company is quoted in a partnership deal. You want to see the big company quoted.
Take a look at the PTOTF chart below:
PTOTF chart: August 15, 2019, speculative news play —
courtesy of StocksToTrade.com
The stock was halted on the news. Usually, if a stock gets halted, the news is meaningful. So I thought it would spike. What happened? When it started trading, it had a tiny spike and then failed. When it failed, what did I do?
I traded my plan, lost, and cut losses quickly.
If You Have a Plan a Few Bad Trades Won’t Break You
A lot of people, especially newbies, would get very frustrated…
“Ugh… two trades… two losses… I hate trading… this sucks.”
But you have to remember, I’ve had two losses in a row a lot. And if you go back through my history, you can see I don’t mind going for a red to green play. I also don’t mind going for an earnings winner. And…
I don’t mind being wrong on a speculative spike.
What did I do on both of these trades? I went in with a plan and traded my plan. I followed my #1 rule and cut losses quickly. I didn’t hold and hope. I didn’t say, “Oh, this news is huge, I’m gonna double up on my position and wait until the market says this matters.”
Small losses of a few cents per share are perfectly acceptable and within my risk.
Then what happened? This is where it gets fun…
Paradigm Convergence Technologies Corp Ltd (OTCPK: PCTL)
PCTL is a tech licensing company. They specialize in environmentally safe decontamination systems serving a variety of industries. The long-term chart is terrible, and PCTL is a true penny stock.
I dip bought PCTL. It spiked early in the day, and then there was an afternoon selloff.
Here’s the five-day PCTL chart with support a line in yellow:
PCTL 5-day chart: 1-minute candlestick —
chart courtesy of StocksToTrade.com
As you can see, I based my entry on support from the previous few days. Resistance became support. Plus, the open price was right near the support level.
Normally I don’t trade afternoon panics, but this one had several things going in my favor.
You can’t see it here, but watching the level 2 data showed the dip wasn’t caused by a wall of sellers. It was one or two big sell orders.
At almost the same time, the S&P 500 was falling. My guess is, the sellers were taking profits from the morning spike.
Now take a look at the PCTL two-day chart:
PCTL 2-day chart: 1-minute candlestick —
chart courtesy of StocksToTrade.com
My goal on this trade was to make 7%–15% on the bounce. It was speculative, so I took a small dollar position. I sold into strength, right on my target for a 15.22% gain. It was a solid gain that wiped out the two small losses earlier in the day.
Again, I rarely trade three times in a day. But I saw the play and the potential was too good to miss. It was a nice little profit given my small size.
And guess what?
Because I cut my losses quickly on those first two stocks … I finished UP on the day. This is the beauty of trading your plan and cutting losses quickly.
If you cut losses quickly, you can be wrong.
Yes, it’s frustrating. No, it’s not fun. But keeping losses small can allow you to wait for the right trade and get back to green on the day, the week, or the month.
On the other hand, hold and hope can lead to disaster. Even if the stock turns around and you get a win, you learn the wrong lesson.
The End of Hold and Hope
I hope you now understand why hold and hope is a dangerous strategy. Learning to plan a trade and trade your plan is essential to your trading career.
Feel free to ignore me, break my rules, and learn the hard way. Let me know how you do.
I’ll be waiting.
Editor, Penny Stock Millionaires