The main reason people trade NASDAQ penny stocks rather than higher price stocks is that penny stocks offer higher rewards. However, most stock market beginners fail to realize how much risk they are dealing with to trade small and micro-cap penny stocks.
Some people approach the stock market or trading as a hobby, while others treated the stock market as a way to get rich quick. If you listened to the gurus, you usually hear about how much profit they make, rather than how many hours they spent to learn how the market works and how they perfected their trading system over the years.
If you are serious about trading and want to make a living through trading penny stocks, you must approach the stock market as a business. As a business owner, you need to learn about your customers and products. In the same way, you need to understand how penny stocks work in order to make money.
Learning to trade takes time, and I meant lots of time. I personally spent hundreds of hours learning the market before I turned my first profit. I made a lot of mistakes which costs me money. Fortunately, these mistakes turned into valuable lessons for me.
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Apply Statistics to Penny Stocks Trading
Penny stocks trading is all about statistics where we collect data on stock charts and patterns. There is a term in technical analysis called history repeats itself, what works in the past will work again in the future.
Once we learn what type of patterns work well for penny stocks, we can use the pattern as our edge to make money from penny stocks trading.
The question is how do we find profitable chart patterns? I already gave you the answer, through data collecting.
Personally, I have collected the stock charts of daily penny stock gainers and losers for many years. I have on my computer thousands of stock charts that I study. Yes, I am obsessed with the stock market, and that's how I make money from trading penny stocks.
Why do I collect the patterns for daily losers? Because I wanted to avoid losing patterns. By observing how the losing patterns are formed, I learn to avoid them in the future. I also learn to cut losses quickly, so that my losing trades won't turn into one of the big losers.
How to Swing Trade Penny Stocks
I use stock patterns and volume analysis to tell me when to buy and when to sell. Read the following article to learn the top 10 stock patterns.
Top 10 Stock Patterns
These stock patterns are not limited just to penny stocks, they are useful for swing trading in general. If you are doing any type of short term trading, you should know the above 10 patterns by heart.
However, simply knowing the patterns is not enough to beat the market. There are many technical analysts who know about these patterns, yet they fail to make a dime from the market. The reason is that patterns give you an edge, but there is no guarantee the same pattern will make you money on the next trade. The other ingredient that you need to trade successfully is trading discipline.
I've talked about how to find stock chart patterns and how to trade penny stocks in this penny stocks guide if you want to learn more about how I trade.
Two traders following the exact same set of patterns may have a completely different outcome. The trader with discipline will outperform the other in the long run.
When a losing trader started losing money following a certain pattern, they either move on to the next pattern or fall in love with the pattern. Some hang on to their losing position for far too long until their destroys his portfolio.
A winning trader analyzes their trades. When a pattern fails, he investigates and optimizes his trading system so he can do better on the next trade. Instead of focusing on how much money he makes on trade, he focuses on how well he executed a trade.
Beginners often neglect the importance of a trading plan and having a trading journal to keep track of all the trades. When I first started trading, I didn't think it was all that important. Needless to say, I lost money consistently swing trading stocks even though I was able to recognize winning patterns. However, I was either too early or too late to execute my trades.
So I started a trading journal that keep tracks of my performance. After a few weeks of tracking, I was able to find flaws in my trading system and as soon as I took the time to fix my mistakes, I was finally able to turn a profit.
My biggest issue was discipline problems.
Sometimes, I would jump on trade early because I was afraid of missing out.
Other times, I would cut my losses way too late because I convinced myself the losing position will soon turnaround because my pattern says so. Most of the time, however, the turn around never came and I ended up taking big losses.
And then there are times when I trade with too big of a position that I can handle emotionally. During those times, I would often act irrational and sell my stocks when I should have held them, only to watch the stocks spiked after I sold.
Once I started tracking, I know exactly what I did wrong and was able to eliminate these problems. The fewer mistakes I make, the more money I make.
Trading is an inside job where you have to learn about yourself and improve your trading system constantly if you want to succeed in the market.
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