The Eight Common Mistakes That Hold Back Penny Stock Traders
Penny stock: Readers you should always focus on what holds you backs in penny stock trading. In our research over the years, we have found a few persistent errors that undermine the average micro-cap trader and prevent an evolution into an awesome penny stocks speculator, able to navigate the content of a penny stock newsletter, for example, with a systematic understanding of how to capitalize on the good opportunities, and avoid the big losers.
There are two themes that define this examination: Poor Discipline and Herding Behavior.
The first of these themes is easily parsed into issues surrounding Chasing gaps, Averaging Down, Stop-loss Avoidance, and a Lack of Execution Strategy.
It is often difficult to spot the difference between Top penny stocks and the rest of the field. The second theme focuses on the challenge of appraising Penny stock picks, and covers the span of how to find the Best Penny stocks among a universe that includes a high percentage of scam companies, empty PR, and vacuous hype.
Mistakes of Discipline: Buy Penny Stocks With Tact
- Don’t Chase Big Gaps. If there is a key PR release or some piece of obviously positive news, and you get an alert from a credible penny stock newsletter or other source of top penny stocks, be mindful that you are probably not alone in coming upon this catalyst. If the resulting gap is something on the order of 30% or more, it is usually better to look away.
- Don’t Average Down. If something starts trading on good news and doesn’t work early on, the worst thing you can do is buy more on any initial steady declines. Sometimes it works in your favor and allows you to escape with a small win or flat trade. But when it doesn’t work, you can take a hit that will cancel out your next five winners.
- Have an Order Entry Plan. We suggest traders who buy penny stocks first identify the market (bid/offer spread) and be willing to hit the offer with a market order if the stock is not moving, but order flow is high and the spread between bid and offer is not larger than 1%. Otherwise, it is best to always use limit orders to avoid being the last one in. But most importantly, have a plan, and focus on avoiding critical errors in size and style of execution before you play.
- Use Programmed Stop-Loss Orders. Trust the pro’s on this. If you are going to play with margined exposure, eliminate tail risk. Use real stops.
Mistakes of Crowd Behavior, or Herding: Think For Yourself
- See the Argument Clearly. In the penny stock newsletter world, there are some great and valuable opportunities. But make sure you spend some time on your own doing due diligence. Good arguments are good arguments. Hype is hype. Learn to spot the difference, and notice the best penny stocks.
- Don’t Be Late. We have found that awesome penny stocks with good catalysts and momentum seem to reach a peak of excitement and then fade. If you don’t feel like you are early to a good story, then stay away.
- Feel the Excitement…and Run From It. The point at which something is the most exciting is usually when the story has been across every board and on the radio and out in paper mailers. Everyone is talking about ABCD!!! So find something else that everyone will be talking about next, and stay away from ABCD.
- Find a Good Source. This may be the most important part of the equation. If it is mostly in Chinese characters and came in your spam folder and contains the stock symbol and a lot of exclamation points, this is not your lucky day. But, if you find a good penny stocks newsletter and you take some ideas that benefit you and find the penny stock tips useful then you should gradually increase your participation. Anything that would help you to give you an idea of when to buy penny stocks will help.
After readers focus on what holds then back in penny stock trading it will become much easier to profit within the penny stock market.