Take ‘Em Like a Man
Dear Penny Stock Millionaire,
Over the past three weeks, my winning percentage is roughly 13% lower than my average. I’ve logged back-to-back losses. And I even had my biggest loss of the year.
Shortly after the back-to-back losses, I got this outpouring of support and sympathy. And I really appreciate that.
But you’ve gotta understand … I’ve been trading for over 20 years and teaching for over 10. If I let a few losses take me down, I wouldn’t be here today. So in my book, those losses were great trades.
Even with my biggest loss of the year (that I covered in this issue) I’m not unhappy with my entry. And had I not experienced order execution problems, I would have cut losses much faster. For now, I want to focus on the back-to-back losses from November 14 and 18 because there are solid lessons in those two trades.
So how can you lose money and call it anything but a bad trade? Simple, follow your plan. That’s exactly what I did. And I stuck to rule #1 and cut losses quickly.
Rule #1: Cut Losses Quickly
Rule #1 is to cut losses quickly. We’re all here to make money … But first, you have to understand how to manage your losses. It’s the first rule because it’s the most important and also the hardest for my students to follow.
There are five possible ways a trade can end:
- A big win
- A small win
- Breakeven (scratch)
- A small loss
- A big loss
The greatest threat to your ability to continue trading is a big loss. A big loss can completely disrupt your mental process. And a big loss can cause you to lose your most important trading tool: your money.
In a game where 90% of people lose, you have to do something different. Learn to eliminate big losses to head in the right direction.
Also, remember that there will always be another trade. No one trade will ever make you rich. But one trade can blow up your account. If you use leverage or short sell, you can actually lose more than your entire account and go into debt.
Learn rule #1. It’s #1 for a reason … Cut those losses quickly.
How to Stay in the Game
When you’re learning to trade, your top priority is to not go broke. So many traders get into trading only to blow up their accounts within a year or two. With all the newbie traders and wannabe shorts out there, some blow-up even faster.
Don’t be like those traders. You have to learn to never — under any circumstances — take a big loss. How do you avoid big losses? By taking smaller ones. You have to get out of bad trades quickly.
My last trade before ADXS was ASTC I lost roughly $150 on each of these trades. ASTC eventually spiked just as I predicted … just not at the time I expected.
Did I hold and hope? No way! I got out.
Am I sad about the loss? Not at all. What you have to understand is, I trade with a small account on purpose to show you the process. Plus, any money I make from trading goes to charity.
Why? Because I want my students — and I count you as a student if you read these posts every day — to see my priority is teaching.
So I gladly lose $150. Heck, the cost of sending out text messages and emails to my students when I alert them for my paid subscriptions is higher than that. And I gladly pay it because the lessons are far more valuable for you.
So I don’t judge trades based on the resulting profit or loss. I judge my trades based on whether I stuck to my process and trade plan. This is one of the hardest lessons I teach — and one of the most important for you to learn.
Remember the big picture. Learn to trade smart.
Lessons From Advaxis Inc.
Here’s my comment from when I entered the Advaxis Inc. (NASDAQ: ADXS) trade on November 18:
I bought this speculative runner that’s closing near day highs on a strong first green day with breakout volume… goal is to make 7-15% selling after hours… if I can sell .55-.60 I’ll take it, cut losses quickly if wrong, same rules as always to protect myself…
When it was clear the trade wasn’t going my way, I got out. I don’t like choppy stocks and I don’t chase.
Take a look at the ADXS chart:
ADXS chart: November 18, speculative first green day runner trading losses example — courtesy of StocksToTrade.com
Here’s what I said as I got out of of the trade:
Not closing strong at all, small losses are fine, onto the next, potential rebuy if it can break .53 day highs tomorrow morning too for possible followup spike but this one is choppy.
I bought this one because I thought it would close strong. Shortly after I got in, the buying slowed down. I sold quickly and took a small loss.
I always have a specific thesis about a stock. If the stock doesn’t do what I want — when I want — I get out. This one went up, just like I predicted. But again, the timing wasn’t what I expected.
Learn to trade like a retired trader. Only come out of retirement for the very best plays. If one of those trades doesn’t pan out exactly as you predicted, get out and preserve your money.
Editor, Penny Stock Millionaires