1) Trade The Right Stocks
The best stocks to day trade are the ones that are trading with abnormally high volume and making new highs during the day. A stock trading on high volume is a sign that something is going on with that company and other traders are interested in trading that companies stock. It could be a news release of a positive drug study, a new breakthrough discovery, an FDA approval or whatever. The news itself doesn’t necessarily matter but what matters is that thousands of other traders are all watching the same stock. And when thousands of traders are watching and trading the same charts, looking at the same patterns, identifying the same support and resistance levels it’s more likely that those chart patterns will end up being picture perfect and actually following through as predicted. High volume doesn’t just indicate interest but also indicates great liquidity making it easier to get in out of trades quickly.
2) Tools Should Be Fast And Reliable
When I was first starting to day trade I only used the free tools. I was using free commission brokers, free charting software and free scanning software. But, I was commonly having problems. I would sometimes get bad fills or my charts would lag or even display wrong information and my scanners wouldn’t pick up some stocks quick enough. I thought this was just how trading is and it’s something I’d have to deal with. I didn’t know any better.
Since these stocks move fast, we need to be fast as well. Any delay in data or execution could end up costing a lot of money. So now I value quality in my tools more than anything, even if I have to pay for the service because nothing is more frustrating than losing money from a technical malfunction which could have been prevented by using the right tools in the first place.
3) Hot Keys
Instead of typing the number of shares, typing the order type, and typing in the price you want in an order window, hot keys allow you to press a preprogrammed button to buy or sell shares and it is instantly queued up. Want to buy 1000 shares using a market order? Press shift+Z, boom it’s done. Want to immediately place a stop 10 cents below your position after you buy? Press control+ x and you immediately have your stop in place. Whatever order you want to place, you can program a hot key to do it. By having this feature, you are not wasting any time by typing in orders. These stocks move quickly and any delay in putting your order together by having to type it in could cause missed opportunities or losses from not being quick enough.
4) Buying Only Around Support
Penny stocks can make 100% or more gains in one day and it’s really easy to give into FOMO when you are sitting there watching a stock go to the moon without you. When traders give into FOMO they usually find themselves buying at the very highs and left holding the bag as the stock reverses and falls all day long. You have to be patient enough to wait for the stock to make a pullback and come back into support. Once it’s back at support you want to see confirmation that support will hold and then it will be safe to take a position. Once you’ve confirmed support is holding and you take a position, you can set a tight stop just underneath support which will give you the best chance to make a profit while keeping the risk low.
5) Cut Losses Quick!
As soon the trade doesn’t work out you have to cut your loss. It’s hard for traders to sell for a loss because there will always hope that the stock will come back around to your break even price or maybe a profit. But once you sell for a loss, the loss becomes real and losing doesn’t feel good. We want to hold on to that hope to avoid pain. If you follow step #3 your loss should not be a big deal because it should be small.
Another common mistake is turning your planned day trade into a swing trade because you didn’t want to sell for a loss. You have to remember that most of these low float penny stocks are companies that are struggling to stay in business so they are not likely to appreciate in value overtime. If you start thinking of turning your day trade into a swing trade just remind yourself that it could possibly be days, weeks or months before the price ever comes back to your break even price thus tying up your funds for an unknown amount of time, IF that ever happens.
It’s important to be aware that you can be wrong on any given trade and it’s inevitable you will take losses. I can’t stress enough that as soon as the trade gives you a reason to exit you should cut your loss and move on to the next trade. Don’t hold on to your losing position hoping it eventually turns around because the odds of it happening are slim. Once these penny stocks start falling below support levels, they usually continue to fall.
6) Stick To A Predetermined Plan
There is no room for emotions when trading stocks and having a predetermined plan will help keep you from making impulsive decisions based on emotion.
I know exactly how I am going to trade a stock before I even enter into a position. I know at what price I’m buying, what price I’m selling for a profit, and what price I’m selling at for a loss. I even know a head of time If I plan to add to a position or scale out of the position if it’s working in my favor. I plan out every aspect of my trade before hand so I know exactly what to do. Because I have found that almost all my impulsive decisions are decisions made through emotion mid trade. So by following a predetermined plan that was thought in a rational state of mind, I know that if I stick to the plan my trade won’t be compromised by emotion.
7) Practice Practice Practice
Practice inside a paper trading account. Learning to trade these fast moving stocks in real time successfully takes a while to get used to. You never want to be using your own money while learning because most likely you’ll lose all your money before you get the hang of things. Keep a record of all your trades, write down your entry, your exit, how much you made, how much you lost, the reason you sold, what strategy you used, what was your thought process for the trade and take a picture of the charts. Constantly review your metrics and find out what you need to tweak to become better. You basically need to become addicted to always analyzing. The analyzing is never going to stop. Even the best traders constantly review their metrics and make adjustments. Once your wins are bigger than your losers and you have a win rate of over 50%, that is when you’ll be ready to start using real money.
Learning to successfully trade is not an easy path to follow especially with penny stocks. It’s going to take a lot of dedication on your part to learn how the market behaves, learn how to control your emotions, and learn how to adjust certain things in changing market conditions. If trading were easy everyone would be rich. Only the people who truly want it and work hard enough to obtain it find success. Good luck and I wish you the best!