Mistakes To Avoid When Trading Penny Stocks

Buying based on newsletters and stock promoters

Don’t believe what you hear or read in a free news letter. Many rookies fall victim to Stock Promoters. They always promise to have the next big thing. They want you to park your money in the stock they are promoting which is always a bad idea. They can be very convincing, but don’t ever take a position in these unless you have done your own due diligence. In most cases a stock that is being promoted will have several news releases regarding future revenue streams for the company. Most of the time the news is bogus.

Being Greedy

This is the most common mistake associated with trading Penny Stocks. We heavily enforce the concept of locking in profits here at Picks That Make Cents. Success comes over a period of time by locking in your profits. Most rookies wait for a 10% profit to go higher while giving back all of the money in the process. Don’t be greedy, be smart. Take the money every time momentum slows. You can always take another position if the momentum continues.

Making trades based on emotions

This is the same concept to being greedy, but we are referring to the frustrated trader. Everyone goes through periods where they feel they can’t make a good trade no matter what they do. This is a dangerous feeling to have as a trader. It can lead to irrational decisions, dollar cost averaging, trying to play the same stock over and over to make your money back, and trading with fear. The only way to stop losing is to stop. If you get roughed up a couple of days in the market take a break and come back refreshed. Trading decisions are hard enough when your head is clear.

Risking too much

Throwing too much money in any given trade can hurt your account and possibly paralyze your trading career. Only trade with money you can afford to lose. Trading with money that you need causes you to make poor trading decisions. Professional poker players refer to this as “scared money.” Trading with scared money will have a bad impact on your decisions.

Being impatient

This is a very common mistake made by rookies. You have to be patient when you are trading. If you are not sure about a trade, sit it out. There are tons of traders that are always looking to trade. This is not a good business model. Some of our most successful members tell us they only trade our picks, but they don’t trade everyone that hits the entry. They are looking for certain things in our picks, and will only consider taking a position if they meet the criteria. Our best member trades our picks for a living and says he has put together a winning system designed around our picks, but only trades about half of them that hit the entry price.

Making inconsistent decisions

All of your decisions that you make should stem from your trading plan. You must stick to the plan and be consistent in making your decisions. In order to get consistent results you have to make consistent decisions. Decision making should be automatic. If you are on a proven plan you must stick to it. Every trader will have bad days and sometimes even bad weeks. It is important to stay committed to your plan when things get shaky. Successful traders stick to a proven plan even when it is not working.

Waiting for the come back

Hanging on to a losing position with the hope it will come back. The best way to avoid this mistake is by having rules to set stop loss orders, or having a set of rules with technical indicators that you will use to cut losses. Most brokers will not allow you to place stop loss orders on penny stocks so you will have to manually place them when you want to cut your losses short. When you catch yourself praying about your stock positions it is time to sell! What you have to realize is that most penny stocks are manipulated so if it was high and crashed then it could never come back.

Investing in penny stocks

Taking advice from a Promoter or conducting your own due diligence to invest in Penny Stocks is very risky. If you do decide to invest in a Penny Stock for a long term hold, it should only be a small portion of your portfolio. Penny Stocks are great for traders, but often lead to large losses for investors.

Risking real money to learn

We discussed this earlier, but we want to go over it again. Like anything else in life, the best way to learn is to practice. It is never a good idea to risk your account as a rookie before you have practiced. We went over this on the Learning page. If you ever have any questions you are more than welcome to e-mail us after you join. Even when you first start trading real money you should take small positions to get your feet wet.

Making up a trade

This goes back to being inpatient, but it is so common we feel it needs to be discussed in greater detail. Making up a trade refers to finding something that is not there. There might be days where you can’t find anything and that is perfectly okay. You can’t lose money if you don’t risk any.