Don’t Make Another Trade Until You’ve Read This…
Dear Penny Stock Millionaire,
Ahhh long weekends. The perfect time to catch up on some R&R… and study up so you can be prepared to trade when the market is open!
Over the past few days we’ve looked at what day trading is, why it’s a strategy that can make you a ton of money, and how to pick a brokerage that will most benefit the type of trading you’ll be doing. If you missed our previous issues, take some time today to read them as well.
The end goal is to help educate you so that you have the resources that you need to start day trading yourself.
Keep in mind, before you make a single trade, you still have to study and do your research, but this will help you along the way.
If you are just getting started, I would recommend paper trading. It will let you practice the techniques that we’ve been discussing this week, and the mistakes you make won’t cost you anything.
Let’s put it all together into a nice, workable plan.
Cut Losses Fast
When I first started trading I didn’t have enough money in my account to let losses run. Little did I know, that inability was critical for my long term success.
I had no choice but to cut my losses fast. It became a habit to cut losses. There were only a couple of times when I broke my own rule and I paid dearly, so it was ingrained. Until I got cocky, that is…
Remember me telling you about my losses in 2003 and 2004? Those losses happened because I tried to force trades and ignored my own rules about when to get into a trade.
At that time I was shorting stocks and my rule was to wait for sideways price movement before I got in on the short. I also wanted to see important price level breakthroughs before I started shorting.
Instead, I let my ego get in the way. I got impatient. I had one three-month run where I lost over $100,000 each month. Not because I followed my plan — because I went against my own rule to cut losses fast.
So learn this now, before you even start: Cut losses quickly.
Fine Tune with Small Accounts
It’s a funny thing. Since I started teaching, every year I take one of my accounts and bring the balance down to $12,000. To help my students, I go back to the beginning and trade my way up in that account.
I do this for two reasons:
First, it forces me to think like a beginning trader in regards to the pattern day trader (PDT) rule (which we covered in yesterday’s issue).
Second, it forces me to make smaller trades and be more careful.
I force myself to play small to be a better teacher and a better trader. I’m more conservative and I don’t let my ego get in the way. I recommend you have several small accounts once you’re ready — spread it out and fine tune your strategy and discipline.
Don’t use leverage.
I hope you heed this advice. There are times when you’ll use a margin account. Specifically for short-selling. Using a margin account for short selling doesn’t have to involve leverage.
At first, I think you should keep your margin account separate from your regular account. This goes back to having more than one small account to fine-tune your strategy.
Never Stop Learning
You’re going to hear (or read) this from me again and again. I can’t repeat this enough. Never stop learning. Keep studying.
Learn from your winning trades and learn from your losing trades. Apply what you learn and don’t let your ego get in the way.
Day trading penny stocks is not a get-rich-quick scheme. There are other so-called gurus out there who want you to believe you can get rich quick. Or that once you know a play you’ve got it for life. That’s bullshit.
You have to keep learning. Did you know that the word guru means to bring from darkness into light? Even though I don’t like to call myself a guru I want to bring you from lack of knowledge into the light of knowledge. Never. Stop. Learning.
The Bottom Line
This week has been a brief crash course on what it takes to be a day trader.
So let me ask: Do you?
Whether you answered yes or no, I hope you now have a better idea of what it takes. Go back and read this week’s posts again and then bookmark them. Research the topics that we talked about. Go out and find resources that give you more information on those specific terms or concepts.
This blog isn’t about me. It’s about you and your future.
The life of a day trader can be pretty damn good. But you have to get an education. Learn to manage your risk, master the patterns, and set yourself up with some rules.
Then, get out there, and get started.
Editor, Penny Stock Millionaires