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Penny Stock Trading – Business Style
Penny stock trading is like any other business. Your goal is to maximize the return on investment. When trading, your inventory is how much money you have in your brokerage account. You then take this amount of cash and try to grow your account. When trading, not every trade is profitable, you will need to figure out what are the situations that make for profitable trades. The only way to gain this knowledge is by trading. As you reflect back on your trades you will realize which situations were profitable and which weren’t even when your not in a trade. You can paper trade or open a practice account but when your out in the world think like a trader and realize how stocks are actually doing. You must do this yourself, headlines are worthless.
If you start trading with cash before you have enough experience, you may lose some or all of your account before you learn enough to be successful. This may turn you off from the stock market before giving it an chance. It takes years of trading to be successful at all sorts of trades. Still to this day I’ve met many traders that are able to trade runners better than me, but I can nail the dips in a stock trade before they can. Often I’ll make my money on the contrarian end of the trading cycle. Your main investment should be time, not money that way you will learn your way around the market and find out what actually moves a stock compared to what your being told.
Plan your trade before you enter it, what are you expecting to make, what will you accept for losses. Do not buy penny stocks and hope for the best. You are dealing with the unknown, you don’t know what news will come out tomorrow good or bad and that’s just in regard to the stock, something in the world may effect the sector your in i.e. gold/oil/tech. There could be a terrorist attack, what you are doing is making an educated guess using all the knowledge you have.
Keep a record of every trade. Why you entered, what you were thinking then you can look back over months or years and evaluate your trades. Which trades were good ones, which ones were bad, do you have better days? How were you feeling on those days? If you’re not keeping these kinds of records your not doing your best to be successful and you’ll probably end up failing. When trading, there are too many factors involved that you will not remember when you look back at that awful trade of xyz 6 months ago.
When your review your trading log, whether it be yearly or quarterly you may find out that trading after a night of partying is bad for you or trading a certain sector for you is good. This information is invaluable. You may be great at swing trading but not be great at getting in and out for a dime. This knowledge should help you shape your trading plan.
Don’t let anyone fool you, trading is a very difficult process because of all the unknowns you are dealing with. Thats why the best traders are just making an educated guess if they say anymore than this they are simply not being honest. When analyzing a sector to invest in you will always find contrarian information and advice this is inherently stressful and you need to trust your knowledge. The better you are at being right by trusting your gut, the more likely you will succeed as a penny stock trader.
When you trade, you are alone, this is very solitary and I like it best this way. Others like to use chat rooms and trade in groups, some very large and some very small. Try different groups to see if you gel with them. Personally I find myself making more bad trades in a group as the chat room people are constantly excited by one stock or another. Keep it in perspective though a chat room is a great place for the pump and dump crowd to get in and pump up their penny stocks to make a buck off of unsuspecting beginners.
With all this in mind, the rewards of being a successful trader are huge. There is a lot of money out there to be made. You will probably work from home or the office and develop your own schedule. Just don’t try to take care of 5 babies and trade from home. Your environment needs to be conducive to trading. An easily manageable area that you are completely comfortable with minimal distractions.
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