How to Grow a Small Account With Penny Stocks?
How to grow a small account with penny stocks is a question that I get asked a lot, so I've written this article to show beginners how to grow their trading account. In fact, it is very important to start with a small account to learn how to trade penny stocks and grow the account as you go along. If you cannot grow a small account, you cannot grow a big account.
On the other hand, your account cannot be too small. I would say the minimum amount you should start with is $3,000. If you do not have $3,000, then just wait and save until you have it. Cut your spending or get a part time job to speed up your savings.
Remember, penny stocks are risky and you may blow up your account. Do not borrow money from friends or families, or take out a loan to trade penny stocks.
There is a learning curve for trading especially for penny stocks with all the hypes and news that can double the price for a penny stock in one day only to lose 50% or more in value the very next day. Imagine if you bought that stock at an intraday high, your account will get cut in half in a single day.
Many beginners seem to always be on the wrong side of trades which was how I felt when I first started. It took me years to learn how to trade and make money consistently with penny stocks. After years of struggling and finally making it, here are my tips to grow a small account for beginners.
Aim to Become a Better Trader
Aiming to become a better trader rather than only going after the money is the first rule. Yes, we are all here to make money from penny stocks. However, the more time that you spend thinking about the money, the more money you will lose.
Trading is like a business. If you look at all the multinational companies, they are successful because they solve a big problem. If they were only to focus on making more money, they won't be able to grow as big as they are.
Trading is no different. When you are only going after the money, you will be influenced by others around you in terms of ego, money, or fame.
You will end up making decisions based only on emotions rather than logic which is the key to trading success. That was why I don't suggest anyone borrow money for trading because that will greatly affect his trading decisions.
Years ago when I was still a losing trader, I was money hungry and trying to make a lot of money in a short period of time trading penny stocks. I wanted to get rich quickly.
Neither less to say, I failed hard. All my trading decisions were based on greed and fear, and not on my trading strategy or chart patterns. A trading system that works well on paper fails to work when I have my money on a trade.
After countless mistakes, and learning them the hard way. I finally learned that trading is an inside game. In order to make money, you have to improve yourself and your trading skills and money will come naturally as a result.
Focus on One Strategy and One Pattern
When your account is small, you should focus only on one strategy and one pattern.
Through studying the market and looking over stock charts for winning stocks, you may have found a couple of chart patterns that work.
You might be tempted to trade with all these patterns and start making money right away. However, since your account is small, you don't want to run after all these patterns each may require a different trading strategy.
Instead, you should focus only on your best pattern. That pattern should give you the best winning rate, minimum risk, and occurs frequently. If you've found a profitable pattern that only happens once a year, then that pattern is no good. You want to have a pattern that you can find at least a few times a week.
If you haven't found a profitable pattern yet, read the following articles to learn how.
Penny Stock Trading Guide
Top 5 Chart Patterns
How to Find a Winning Chart Pattern
Have a Trading Plan
Beginners buy random stocks during market hours without prior planning. This is a big mistake. They think that money is made when they execute a trade without realizing that's how most people lose money.
During market hours, penny stocks can go up and down in a matter of minutes or even seconds. Watching the quotes going up and down on your screen can make you nervous or excited if you are just starting out.
Sometimes, you would end up buying a stock that you didn't want to buy because of the fear of missing out mentality. Other times, you may exit a profitable trade too early because you are afraid the stock would go down only to watch it skyrocketed.
You will make all kinds of mistakes during the intraday without proper planning before the market opens.
So what is a trading plan? A trading plan is something that you do when the market is closed. You do your research, study the charts, find stocks to watch, and plan your trades for the next day.
You have a list of stocks that you want to watch the next day, you know the support and resistance levels of these stocks. You know at what entry price that you would go long on these stocks if the stock hit that price during regular trading hours.
With prior planning, you have a much better chance of picking a winning stock based on your research and logical thinking, rather than trade stocks based on your emotions.
Stay Away From After Hours and Premarket Trading
After hours and premarket trading is very volatile and beginners should stay away from these hours and focus only on the regular trading hours.
There were times when I saw a stock was up 60% in premarket trading only to find it open in the negative.
EVK, a stock that I had a 200% gain last month. I was tempted to sell it when it was up 50% after hours but I waited anyway. The stock gapped up over 200% the next day and I took some profit at the open. If I were to trade in the after-hours market that stock, I would have missed 150% of the profit.
Think Long Term in Short Term Trading
Many people think short-term trading means to get rich in the short term or making a lot of money on a few trades and retire.
That's not how short term trading works. To do short term trading, you must have the capital to stay in the trading game for the long term.
Imagine if you are trading for a living; you will be making over 10,000 trades. Profits from one or two big trades don't really impact your bottom line.
However, losses from one or two bad trades can ruin your whole trading career. That is exactly what happens to many new traders. They double down, triple down, and even quadruple down on their losing positions, or putting all their money on one single trade.
To protect your capital, the #1 rule is to have a stop loss on all trades. Yes, it hurts to get stopped out only to watch the stock skyrocketed right after you exit the trade. But as I say, the profit or the missing profit won't really make much of a difference in the long term if you are making over 10,000 trades.
If you follow the above 5 penny stock tips closely and actually do them, you are already doing better than 90% of the penny stock traders out there and are on your way to grow your small account.
In your trading journey, you will make mistakes and develop your own rules. You can adjust any of the rules, but make sure you follow them.
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