Can You Make Money Without A Penny Stock Trading System?

| December 3, 2014 | 0 Comments

trading systemWhat’s A Penny Stock Trading System?

I’m going to let you in on a little secret… Every great penny stock trader I know has a penny stock trading system!

My question to you… Do you have one?

So some of you are nodding your head YES… And you know exactly what I’m talking about.  But some of you are confused.

Maybe you’re new to trading… or you’ve been trading for a while and never stepped back from the computer screen to analyze what’s working and what’s not!

Well, if nothing else, today we’re going to help you focus on your penny stock trading… making you a better trader… and hopefully start putting more money in your pocket!

So, what is a penny stock trading system?

It’s a simple set of rules successful traders follow to help them identify great penny stocks to trade.  The system also tells them what to do once a penny stock trade starts to work… or worse… what to do when a penny stock trade moves against you.

Think of it as a roadmap to success.

Why You MUST Have A Penny Stock Trading System…

Now, many beginning traders always ask – why waste time and effort trying to develop a penny stock trading system?

Why spend the time and effort to write these details down?

In my experience, very few traders have the steel-like willpower to develop a trading system and stick to it…

Taking a few minutes to write it down… and reviewing it frequently will go a long way to strengthening your resolve!

Remember, penny stock trading gets stressful, or crazy busy, or boring.  As a result, many traders go off on tangents and start making trades they shouldn’t.  Most traders don’t have the willpower to stick to a system… any trading system, day in and day out.

You know who has a great stock trading system?

Warren Buffett.

Seriously, have you heard about the Warren Buffett trading system?  He has a very strict trading system he’s followed for most of his life.

Think about it.  He only invests in industries he understands; He only buys profitable businesses; He holds on to his investments despite market ups and downs; He’s not afraid to frequently add to positions when the markets are down, and his exit strategy is simple… he never sells!

You’ll never see Warren buying risky biotech stocks, or even technology penny stocks… because he doesn’t understand them.

He sticks to his trading system and it’s made him a billionaire!

Like I said, the greatest traders all have penny stock trading systems… so you should too.

But what’s a stock trading system look like?

Key Parts To A Penny Stock Trading System

The way I see it, every Penny Stock Trading System has three critical parts… it tells you the types of investments to make and when to buy penny stocks… it tells you what to do as the market changes and as news impacts your stock… and it gives you clear cut exit strategies.

If you only have one or two of those parts, you’re asking for trouble…

So let’s look at each one in a bit more detail.

The first part of the system is the entry.

Your system should identify the types of trades and investments you will make, shows you how to research your penny stock ideas, and hopefully tells you WHEN to make them.

For example, I know one investor who buys ONLY Dividend Yielding Stocks.

As you can imagine, his trading system really narrows down his list of penny stocks to watch.  He’s not looking at biotech stocks, or mining exploration companies in Canada – unless they offer a dividend.

One hedge fund I know only buys penny stocks in the biotech space BEFORE they announce FDA trial news.

I know another trader who only buys stocks when he sees the price move above the 50-day moving average… like in this chart below…

Penny stock trading system buy indicator example, a chart of RIGL

Now, many penny stock trading systems use multiple indicators and screens to narrow down and identify the best stocks.  The key takeaway, once you find your focus, stick to it!

But that’s not all.

Every good trading strategy should have an idea of portfolio management and risk control.

For example, how many stocks will you hold at one time?  How much money will you put into any one trade?  What will you do if a stock suddenly becomes a huge portion of your portfolio?

All of these questions need to be answered!

That brings us to the second part of a good penny stock trading system… monitoring your investment.

This second part is more important than the first… you have money on the line and you need to know what to do as the situation changes.

What happens if the company misses earnings?

Well, if your system is based on earnings momentum, you’ll probably have to make some tough decisions…. And maybe sell.

Here’s another what if… What if the CEO leaves or dies?

It does happen, and you should be prepared to know what exactly you’ll do in that situation.

What about stocks reaching important technical indicators?  What do you do if the 20-day moving average crosses below the 50-day?  Or what if a stock price falls below the 200-day moving average?

Well, our good friend Warren Buffett often doubles down on his investments if a stock falls… so depending on your system, you know exactly what to do if the stock moves up, down, or even sideways!

Some systems use important technical indicators as exit points… or as points to add more to their investment…

Here’s another… If the stock price climbs 5% without any news… what do you do?

I know one system that calls for buying more stock as the price moves higher!

You just need to see what works for you.

The third and final part to a great penny stock trading system is the exit.

When do you sell and move on.

Here’s a great example… your trading system might have a strict policy of always selling once a stock drops.  One very popular trading system calls for a trader to exit his trade whenever the stock moves down 8% from the high…

It prevents you from holding onto losers.

Others like Buffet don’t sell unless the business fundamentals change.

At the end of the day, the key is to have your system in place, and know what to do as problems arise… this will keep your head on straight when crazy times hit the markets!

My recommendation is… if you don’t have a penny stock trading system, get one ASAP.  Get it in writing, and review it every few days.

You’ll be a better trader for it.

Profitably Yours,

Penny Stock Research

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Category: Investing in Penny Stocks

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