zero emotion. Greed, fear or overconfidence should have no place on your trading desk. The most
important aspect of trading is the preservation of capital. Sadly, this is often the most difficult lesson to
learn and many finally comprehend the true meaning once their entire account balance has been reduced
to the sum of zero. Holding onto your cash can be harder than it looks and simply using stop loss orders
won't cut it. Trading penny stocks puts you in a whole new world of investing.
Together, penny stock day traders and investors provide enormous amounts of capital to small, emerging
and development stage companies. Without us, there would be a lot less progress in the world of
Technology, Science, Exploration and Innovation, as well as Entertainment and Service. These tiny
companies often play essential roles in the evolution and direction of our world. Breakthroughs such as
Nano-Technology, potential cures and treatments for Cancer and AIDS, alternative energy, Global E-
Commerce and even fresh ideas in sports and gaming are all the types of issues one can look forward to
learning the in’s and out’s of as a Micro Cap investor. Despite their humble tile, trading Penny Stocks can
be quite illustrious.
Goal number one for the average day trader and retail investor is to gain a distinct advantage, a view
that they don't have be Wall Street insiders to profit from Micro Cap stocks. Wall Street has their own
agenda, and as you may have guessed, it doesn’t involve lining your pockets. Laying the groundwork to
become a successful trader is not easy, and will require a good deal of effort. It is not, however, rocket
science, provided you can separate facts and logic from emotion and feelings. Passion and sensibility can
and will play a role in your endeavor, just do not let gut reactions play themselves out exclusively. If
possible, compare two charts of the exact same stock, in the exact same time frame, only make one of
them red, and one of them green. Show each chart to someone unfamiliar with investing, ask them to label
each chart with a buy or a sell, and you can probably guess what their answers will be. Now make the
exact same chart black and white, and you will likely begin to see all kinds of patterns and ideas that you
had previously missed. Another, perhaps more useful exercise, is to look at the peaks and valleys of a
stock over a considerable time period, and realize that history often repeats itself. It is very easy to see the
logic in buying low and selling high, as well as the emotion in buying high and selling low, all in hindsight.
Perhaps the best way to translate this to your trading desk is to simply say, never make a “momentum play”
Our strategy is unique but sound. Flexibility, fundamentals, technical analysis, diversity, attention to
detail and the willingness to stick with a plan are all steadfast cornerstones in the architecture of our
success. As we alluded to earlier, Penny Stock trading is completely different than trading the NASDAQ
100 or the Dow Jones Industrial Average. Trading huge companies requires huge capital, and although
tiny 2-5 percent profits can add up over time, margin calls and tight stop losses can begin to take their toll.
When trading Micro Caps, we seriously look for profits in the 50-1000 percent range, and tend to keep our
stop losses very loose. Although day trading penny stocks can be a viable option, we tend to have more of
a swing trading bias. Diversity comes not only from being in many different positions at the same time with
unique business models and activity levels, but from having many different time frames as well. Averaging
down, a practice that Wall Street has dubbed dangerous, is defined as buying more shares of a stock you
already own at a lower price than originally paid, thereby giving you more shares for the same cost basis,
and ultimately, a lower average price per share. When we buy a penny stock, we always start slowly, with a
small chunk of the portfolio. This gives us several opportunities (no more than two or three) to buy as close
to the bottom as possible. Knowing the difference between reckless exponentially regimented buying and
prudent value investing will lead to ones success in these explosive stocks.
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