The First Deadly Sin Of The Penny Stock Trader: GreedProvided By Ultimate Trading Systems How Can The Average Penny Stock Trader Avoid Potential Disaster?In the markets, greed is often a good thing. It is what drives a penny stock trader to perform well, and what drives much of the markets movement. Its the effort that a penny stock trader expend trying to make a profit that creates the market movement that enables you, as a penny stock trader, to succeed. The desire to make money is what motivates every penny stock trader to become successful. But the desire to succeed is different from the desire to get every bit of possible profit from a trade. This kind of reckless greed makes the penny stock trader hold on to their positions long after the downside has started to outweigh the upside, until risk outweighs potential reward. Here's an example: a penny stock trader sees that a particular stock is starting on a run; it's reported good news and is already up 20% for the day. The volume is still building; it's stable at the current price; the market is rallying strongly; and it looks like it will go higher. The penny stock trader buys 1,000 shares at $6 a share. By 12:15 P.M., the stock has raced up to $10 - a gain of over 66% for the day, and a profit of $4,000 on 1,000 shares. This penny stock trader knows that round number price points, like $10, are psychological barriers for the penny stock trader and that if a stock is going to stop rising, it will probably be near a point like this. As it turns out, after momentarily shooting to $10.03, the price stops rising and starts to go down. The penny stock trader also knows that he should sell now and re-buy later. But instead of acting wisely, he keeps thinking, What if it goes to $12 before it stops? What if it makes a 100% gain? How will I ever forgive myself for missing out on another $2,000 profit because I sold too soon? His greed conquers his trading experience. Of course, what ends up happening to the penny stock trader is that the stock drops down to $9.50 and then $8.75, ending the day at $8.90. The next day the market opens down and the penny stock trader is lucky to get out at $8.70, down $1,300 from the profit he could have had. The way to get around the lure of excessive greed is to take profits consistently. It doesn't matter if the stock goes up another dollar or two after you're out of the position. The important thing is that you've made a clean profit and are ready to go on to the next trade with even more capital than you had before. And going on to the next trade is better than staying in the old one once it's gotten too risky, because the next trade will have an upside that outweighs the downside. The old trade's downside has begun to outweigh any further gains the penny stock trader is likely to make. If the penny stock trader locks in profits, he may miss a few highs, but hell stay consistently ahead. Its better to be consistently profitable than to risk losing what you have already gained. Its also wise to consider setting your goals for solid gains, not for the maximum possible gains. Aiming always for the most possible profit for a trade locks you into a greedy mindset that will hinder your success as a penny stock trader in the long run.
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