Lesson 7: Placing a Trade

Now that you have learned about what penny stocks are, how to research penny stocks, trading strategies, how to open a brokerage account, and how to read Level II, you are finally ready to place a trade and buy penny stocks.  Wahoo!  But, don’t celebrate too soon.

Actually placing a penny stock trade correctly is just as important as any of the other steps. When trading penny stocks, we recommend you follow these guidelines:

Always Use a Limit Order When Buying or Selling Penny Stocks: Due to the thin amount of shares available for many penny stocks and market maker games, it is crucial that you always use a limit order when you buy or sell penny stocks.  A limit order specifies exactly what you are willing to pay for a stock.  It is generally a good idea to set limit orders as “Good Till Cancelled” limit orders, so that if only a portion of your order fills in a trading session, the rest will remain for the following trading session, limiting your commission expenses.

Carefully Select The Price You Choose To Buy and Sell: Using Level II and a read on a penny stock’s trading strength, carefully choose your buy and sell prices.  Getting into and out of a penny stock trade at specific prices can be the difference between a profitable trade and taking a loss.

Check to make sure you have entered a trade correctly: Penny stock trades are often entered quickly and under pressure, due to the fast movement of penny stocks.  Take a few seconds to check that you have entered your order correctly before hitting the “Submit” button.  There is no better way to screw up a promising penny stock trading opportunity than to enter an erroneous order that has no chance of getting filled or is rejected by your broker.

Use Stop Loss Limit Orders:  It may not be possible to place stop loss limit orders for penny stocks, as some brokers do not allow stop loss limit orders for low-priced stocks.  However, this does not prevent you from using your own stop loss limit orders by following through on your trading parameters.  If a 10% loss is all you can tolerate from a penny stock trade, then by quick to enter your limit order to sell, if a penny stock reaches the 10% loss threshold.

Use Extreme Caution When Chasing A Penny Stock – Penny stocks can run higher very quickly.  Do not chase a penny stock that has already moved well beyond the price you originally intended to buy it.  Stick to your trading strategy and parameters and pass on a penny stock that has run past what you determine is a good entry price.  Penny stocks are notorious for making big runs, then falling back in price just as quickly.  Protect your trading capital and avoid being one of the bag-holders that is holding shares at the top of a run.


Copyright © The Small Cap Sentinel 2019     Disclaimer