Penny Stocks have always been the favorite of retail investors for the fact that the simple lure of buying a stock that could potentially be a multi-bagger 2X, 5X or 10X is just too tempting. As such, the proliferation of penny stock trading system and newsletter is gaining much popularity and attention.
However,in the chase to identify a multi-bagger penny stock, retail investors fail to follow the basic fundamental rules of stock trading that lead them to fail in making money with penny stock systems.
Every trading system has its own strength and weakness and no trading systems whether it is penny stock or large cap trading systems can ever claim to be 100% accurate. A system with 50-80% accuracy should be able to make very good returns for the trader.Some systems are short term quick plays while others are slower trend following trading systems. Hence, it is important to know how to use the trading system effectively to be able to make money successfully in the stock market to trade penny stocks.
Same fundamental rules still apply when using penny stock trading systems :
(a) Understand the Penny stock trading systems. Read the charts of the stock pick and understand the characteristic behavior of the stock picks from a trading system or newsletter. Some penny stock systems are trend following while others are quick play. Hence it is important to spend time initially to understand the stock picks from the penny stock system.
(b) Stop Loss Rule apply. No matter how good a trading system is. A failed trade with no proper stop loss is enough to wipe out all the profits gained.
(c) Position Sizing Rules apply. Just because a stock is cheap does not mean that a trader should increase a position size of a trade considerably. One of the reason why most penny stock traders lose big time is because of over-sizing a trade.
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