When it comes to trading penny stocks you have to play by the rules. Your rules. When you set them, don't forget them. Carve them in stone. They are the way you are going to make money.
Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.
Rule 1: I will always be obedient to my rules
You might not thing this need to be said, but it does. The number one reason people fail at trading is that they break their rules when they think something is a sure thing. It's just human nature. But you have to learn to ignore this impulse.
Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.
There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.
Rule 3: I will never hesitate to cut my losses at between 5% and 15%.
You must initiate a stop loss system so that even when you make an error on a trade you can make sure you don't go in too deep. It is better to cut and run at 5% than hope for a recovery and lose the whole value of your investment.
Rule 4: Do not set price targets.
This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.
The big money is made from trading the really BIG moves that I can occasionally catch.
Rule 5: Become an expert at one method of trading.
Dedicate yourself to one method rather than alternating between different styles. This way you become expert at it. Any other way and you run the risk of being average at a number of methods, but proficient at none.
Rule 6: Price and volume must be your guides.
Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.
Rule 7: Pay close attention to all the signals.
No excuses here. Every time an entry signal appears you take it. Every time.
Rule 8: Never trade from intra-day data. There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions.
Rule 9: Take time out.
Stress is a big influence on every person. To be a successful trader you must be physically, emotionally and mentally fit. Don't spend all day on the computer. If you don't take active measures to manage your stress you'll make mistakes and burn out.
Rule 10: Get above the average.
In order to succeed in the stock market you don't need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, "Did I follow my method today?" If your answer is no then you are in trouble and it's time to recommit yourself to your stock trading rules.
James Spacey writes about a variety of topics including where to buy penny stocks. Visit http://controlfreaks.tv/where-to-buy-penny-stocks-today/2010/10/ for more information.
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