Make no mistake about it, there are several different strategies and techniques that can be applied to make money in the markets with online stock trading. Although they may have different strategies, successful traders do share many things in common even if how they get their results varies. Too often, newbie traders are so
focused on the strategy, that they think it’s the end all be all, but that’s simply not true.
First, successful traders have a plan. They’ll go into a trade measuring what their potential profit and losses might be, before they place the trade. This includes their decision on how they will enter the trade, they might go all in or scale into the position. But the most important takeaway is they have a plan.
Second, they have the discipline to stick with their plan. The discipline comes from repetition, studying similar setups, or even backtesting and forward testing. They have studied past trades and identified what has worked, what currently works and what is not working at the moment. In other words, they are prepared.
If you’re unsure of your strategy, don’t have an outline of your exit, you’re more likely to make emotional decisions when things don’t workout your way. You might panic and not capitalize, or even worse, end up doing something dumb and losing money online stock trading.
Successful traders do not take losing personal. Again, they look at the markets in probabilities. Basically, they’re looking for high probability setups. If it doesn’t work out, they’ll access their trading plan and see if there is anything they could have done differently. But just because a trade doesn’t work out, it doesn’t mean they will stop trading the strategy if they believe it’s still effective. Sometimes unexplainable things do happen in the market, and that is something you have to learn to be OK with.
With that said, they focus on their strengths first and work on their weaknesses second. For example, Nike first came out as a shoe company that focused on runners. After they built that side of the business up, they moved onto creating sneakers for other sports. Eventually they expanded to apparel and a ton of products.
That is a solid approach to becoming a successful trader with online stock trading. Develop one or two bread and butter trades and then try to expand to other strategies. Don’t try to do everything at once. Also, don’t get frustrated if you can’t make money trading a certain way, maybe that doesn’t fit your personality or risk tolerance.
Successful traders spend a lot of time reviewing their performance, journaling and searching for methods to improve. Their goal is to scale up their operation to the highest level it can reach. They take a business approach to trading and focus on risk vs. reward. A special emphasis is placed on risk management. What good is your online stock trading if you win 5 straight trades and let one wipe all those gains away?
As you can see, risk management is extremely important. Some traders in online stock trading can trade the similar strategy, but one can have superior results based on how they manage risk, control their emotions, and execute the game plan.
It’s not always about your strategy, it’s sometimes more about the intangibles that will make you into a successful trader in online stock trading.
Let’s face it, there are vultures in every industry – including good penny stocks. You see it a lot in the diet and health industry, companies promoting fads, in hopes you take the bait and bite. You might catch an infomercial on the weekends on that can’t-miss money making opportunity. When it comes to investing and trading, there are hoards of individuals pitching you indicators, strategies, and alerts.
Does it ever make sense to sign up and pay for a subscription service pertaining to good penny stocks?
Before I share my opinion, let’s think about it for a second. The more competition, the more efficient the market is and the lower the profit margin. For example, let’s say you are at the supermarket and you’re interested in buying a package of hot dogs. You sift through the aisle and see that there are a number of different brands offering hot dogs. You’ll also notice that prices are relatively comparable. The reason being competition.
Now, imagine that you’re at Yankee Stadium and you’re hungry for a hot dog. You go to the vendor and notice that the price of a hot dog is the same price for 15 hot dogs at the grocery store.
Sounds crazy right?
Well, Yankee Stadium has no competition, you either buy their hot dog, or you don’t buy a hot dog at all. They have no competition, and therefore, they can set prices however they want. With that said, they have a very high profit margin.
Now, imagine that there is a trading strategy for good penny stocks that does very well in the market, meaning that it yields a good profit and has a high probability of being successful. As more traders pick up on this, competition rises and profits become smaller and smaller. To compensate, traders will have to lever up just to get the same type of returns they were getting before. Eventually there will be too many traders in and the strategy has minimal effectiveness.
With that said, I’d be very cautious on anyone selling special indicators or signals. On the other hand, trading rooms, research, and even stock picking services can still be useful.
At the end of the day, there is only so much you can keep your eyes on, in respect to the market. The more qualified eyes, the better. You can learn a lot from good traders, as well as bad trader. Working on idea generation is one of the most important activities as a trader. You see, after a while, some strategies simply stop working, if you don’t work on ideas you’ll eventually be irrelevant. That’s why you’ll hear a lot of traders from the 1990s and 2000s struggle today, they never made the proper changes and are now obsolete – completely out of good penny stocks.
All in all, idea generation services are worth it, even if they are really bad in their picks. Because if they are awful, you can take the other side of their trades and be profitable. On the other hand, services that offer you how to trade or sell you a signal or strategy, the more users they get, the less effective they’ll eventually be.
Most professional traders trade in teams. They share their ideas with a select group of other traders they trust. Just make sure if you do decide to pay for a service, it’s something that fits your budget. Most services offer trials so make sure to test a bunch out before deciding what fits your trading style the most when trading good penny stocks.
The more successful and experienced you become as a trader, the more in touch you are with your strengths and weaknesses. Just like a pitcher in the MLB, they are aware of what types of pitches they throw that give the opposition difficulty. On the other hand, a good trader can tell you what their bread and butter trades are in today’s stock market.
However, from time to time, you’ll hear about other traders making large sums of money doing something that you’re not exactly well versed at. So, instead of trying to learn what exactly they see, you blindly jump in with profits on your mind.
Generally, when you can’t explain why you’re in a trade, along with the exit points, you’re already on shaky grounds. However, it’s human nature to get caught up into something, but it should still be our main focus.
The worst is when you take on a trade that is out of your wheelhouse, and it ends up eating away at entire day’s profits. This type of behavior is often referred to as style drifting. Style drifting is one of the worst habits to have as a trader in today’s stock market.
How can you avoid style drifting in trading?
Well, an easy way is to consistently reinforce yourself what your bread and butter trades are. By categorizing your trades, you’ll be able to figure which ones are the best based on P&L. On other hand, you’ll find out which types of trades don’t suit you well. Getting familiar with your own trades will help you focus on what needs to be done in order to be successful in today’s stock market.
Now, there is nothing wrong with trying new trading strategies. However, these trades should be sized so small that it doesn’t affect your overall P&L. If you’re trading was conducted like a business, then these new trades are trying to show proof of concept. Once they show enough promise, you then can increase your share size and scale up.
With that said, keeping a trading journal is extremely important. There is no way you’ll be able to remember every single trade in your head. Eventually your brain gets foggy, and you tend have selective memory when it comes to your trading. However, a detailed journal will allow you to refresh your memory and walk through the entire process over again for today’s stock market.
Not only that, but it will keep you accountable for your actions. For example, some traders might plead ignorance as their defense for putting on a bad trade. But if they only studied their performance, they would know exactly how they fared on specific types of plays.
As noted earlier, you should always work on your skills and new ideas. But always focus on your bread and butter trades, and see how they can be better. If you’re unsure of what they are, it could lead to style drifting, trading aimlessly without a plan. A great way to avoid style drifting is to review and journal your trades. Style drifting happens to everyone, but the better traders make it less and less of a habit in today’s stock market.
We live in a world where algorithmic trading dominate the daily volume seen in the stock market today. With that said, there are a ton of news reading algos that react to headlines instantaneously, causing tremendous volatility in the company’s referenced in the stories, especially hot penny stocks.
Some traders who rely on technical indicators to make decisions will totally dismiss news all together. Their belief is that the news is already priced into the stock and the price action will dictate where it will go. They feel it’s extremely difficult to quantify the impact of the news so it’s more or less a waste of time to follow it.
Does this philosophy make sense, and how important should following the news be when trading hot penny stocks?
Let’s say the stock price of company ABC has had support at $15, if it were to drop to that level, a trader relying solely on technical analysis will buy some shares. The stock price drops from $17 down to $15, the trader goes long, and the stock quickly drops another $3. It turns out that a news story broke out that ABC is under investigation for accounting fraud and that the CEO has left the country.
Here is a situation where there is a dynamic change in the company’s fundamentals. If you’re an investor, you’re thinking worst case scenario, you’re not necessarily thinking about support and resistance levels. You’re mind is thinking, get out, and ask questions later.
Clearly, in a situation like this, knowing the news can be very helpful when trading hot penny stocks.
Let’s say you trade style utilizes a mean reversion strategy, and company ABC is down $6 and on average it trades in a range of $2. Again, not knowing the news, you might decide to buy some shares. However, if you paid attention to the news, you would have known they just announced their earnings and that additional volatility is not unusual.
This is another example where the news helps in making better trading decisions.
Now, you don’t have to try to quantify everything to make knowing the news useful. For example, let’s say a well known analyst upgrades company ABC and their stock price gaps up on the open. What is the upgrade worth? It’s really hard to say, clearly a positive sign, but hard to measure the impact.
Does that mean having that information is useless? Absolutely not – especially with penny stocks.
It’s when you try to overanalyze the news, in this case, it can causes problems in your trading. For example, let’s say Company ABC has announced that are expanding their business to more regions, this might be seen as a positive news. However, it might not be reflected in their stock price right away.
Letting your opinion get in the way can also be an issue. For example, this is good news, the stock price should be going up…or this is really bad news, the hot penny stock price should be crashing.
With that said, it’s still better to be aware of the headlines and what is going on in the stock you’re trading. Sure, it’s very difficult to trade off the news, and not what is being suggested here. But including the news in your decision making process is a choice many traders make and they fare better when trading hot penny stocks.