THIS is the RISKIEST Way to Trade
Dear Penny Stock Millionaire,
A big part of being a self-sufficient trader is learning how to not take big risks.
You have to learn to recognize big risks and you have to know when to cut losses. Rule #1 is to cut losses quickly. But with some of these plays, you can’t always do that.
My goal is to help you stay safe. Right now, I see way too many students engaging in risky trading strategies.
This is where it gets interesting from a teaching standpoint. There are strategies you can use to try to make money. But they often come with the risk of decimating your account. And that can happen with just one trade…
I just don’t think it’s worth it. And it’s my job to teach you everything I’ve learned in my 20+ years of trading. I want to help you learn to trade safer and smarter.
So let’s get into how to limit your risks when trading…
Know the Risks of Short Selling
I’ve said this a million times: I don’t recommend short selling for new traders.
First of all, shorting opens you up to the risk of losing your entire account. Say you’re shorting a stock and it goes against you. And you don’t — or can’t — cut losses … You could lose the money you put into the trade AND your entire account.
Even worse, you can end up owing your broker by the time you get out.
Shorting low-float stocks on a Friday morning in a hot sector is especially risky. Low floats can spike super fast, so it can be hard to cut losses quickly.
None of my students should get into this kind of risky trade. It goes against everything I teach.
But there are still too many students taking these risky positions. Maybe they get lucky and have a few wins. And that leads them to mistakenly believe they’re on the right track. But in reality, they’re risking their entireaccount and more.
That’s why I say short sellers are the new promoters. They’re not telling people the whole story. They don’t lay out all the risks.
Short sellers can have decent wins over time. Some may have 5%–10% gains and win 60%–80% of the time. That’s not that far off from my track record.
But it just takes one wrong trade to blow up. You risk losing everything and more. That’s the problem with shorting. And too many people don’t understand that. With one trade, you can wipe out months, or even years, of gains.
When you’re a new trader, you should focus on the process and following the rules. Take only the best setups. Develop good trading habits.
You also gotta…
Recognize When You’re Being Stubborn
You have to recognize when you’re being stubborn. This can happen to traders on the long side and the short side.
But there’s a key difference in terms of risk. When I long stocks, I don’t risk all my money. I don’t even risk a big percentage. When you short, your risk can be exponential — no matter your position size. You don’t know how high these stocks can go. More on that in a bit.
Losses are part of trading. You’ll never be right 100% of the time. Even I still make mistakes and take losses. But I always cut losses quickly.
New traders tend to take positions and they don’t even know why. Sometimes they trade just for the sake of doing it. Sometimes they’re revenge trading.
It’s the wrong mindset, and it’s not trading with a strategy or plan. And when those trades go against them, they don’t want to admit they’re wrong and take a loss. They start to hold and hope.
Don’t be so stubborn that you blow up your account. Learn how to cope with your losses. It blows my mind how cocky some new traders are. They can open themselves up to unlimited losses. Especially on the short side.
You might think it won’t happen to you, but it can. Even my top student Tim Gritanni admits that his biggest six-figure loss was on a short position. Guess what happened … Yep, he got stubborn and didn’t cut losses.
That brings me to…
The Most Dangerous Trade
Recently, in one of my chat rooms, a student was shorting a low-float hot sector stock on a Friday morning. This student was asking everyone in the chat room if they agreed with the position… Nope!
I would never short a hot sector play on a Friday morning. It’s like asking to be punished.
This play went against all my rules. In fact, Grittani was actually long in the same stock.
Here’s the thing…
You can be trading a small position… And you can back it up with a solid trading record… You might even argue that you’ll cut losses quickly…
The problem is, if the play breaks out big, you can’t always cut losses quickly.
In a hot sector, news can drop at any time. A single press release can spike the stock.
Any news can bring more buyers to the stock and create a massive spike. Or the SEC could halt it, and then it re-opens higher. That makes it impossible to cut losses. There are just too many things you can’t predict.
The Bottom Line
I don’t want to see any of my students in a position where they lose big. If you have to argue about your position to justify it to yourself and others, it’s probably not a good trade.
The point is, even if you’re trading small size, why take the risk? Why waste your time with low-odds setups? You’re only creating bad habits.
Shorting a play like this is way too risky. There are better plays out there where you’re not risking losing your entire account.
Editor, Penny Stock Millionaires