How Should You Spend Your Trading Profits?

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So you’ve made something of yourself and are now consistent with your trading. You can come in with the peace of mind that you have the ability to take a certain amount of money from the market.

The big question is, now what??

Its very easy to imagine spending your millions on Ferrari’s and Mansions, but there is a big possibility that you might now make it that far if you don’t manage your spending properly when you start making your consistent gains.

So how should a trader spend his trading profits when he/she starts making pretty good money??

1.) Wire Out Certain Amount of Money Every So Often

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This is 1 of the top mistakes I see a lot of intermediate and even professional traders making.

The reason why its so important to wire out money so often is to keep your trading in control. I have seen traders slowly build there account diligently and patiently,just for one trade to come along and blow there account.

The scenario that usually happens is the stock doesn’t go in there favor, but they decide to throw all their rules out of the window.

They hold on for dear life as there position evaporates,but instead of blowing up their $30,000 account, they blew up their $100,000 account.

The person that contentiously takes money out and puts it in savings or other investment opportunities will always have the option to blow up an account and still get multiple chances add more money to participate.

The trader that has all his equity in his trading account will suffer immensely if he ever blows up his trading account.

 

 

2.) Real Estate 

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Its not a coincidence that many real estate professionals eventually put there money into stocks or options, and stock traders and investors put there money into real estate.

I always recommend taking a portion of your trading profits and putting it to real estate because real estate is one investment that will not disappear.

In my opinion real estate investing can also be safer in most respects. Its nice to have some passive income coming in every month so that you don’t have to rely so heavily on trading profits.

And because you don’t rely so much on trading, it can give you the ability to perform better in the long run.

 

 

3.) Find A Place To Live/ Pay Off House

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This is sort of related to #2, but this is talking more about getting real estate to live in.

One thing my mother told me when I was a child was that no matter what happens, “whether its losing a job, being sick, no transportation or no food, she will always have a place to lay her head at the end of the day.”

Meaning, because she paid off her house, she will always have a place to live.

A famous real estate stated that “no matter what happens, there will not be any more earth that is made”. So if you get the opportunity to acquire a piece of land or property, than you should jump at the chance.

Its my belief that if you secure a place to live, this will also take away tremendous stress while trading.

There is nothing worse then losing a ton of money from your account and it affecting your living situation.

This doesn’t mean that you rush to go find a house or an apartment, but you know when the time is right.

And when that time arrives, please take up some money from your account and take care of that area of your life.

 

 

4.) Pay Off Debts and Loans If Possible

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Also sort of related to #3, this has to do with paying off school debt, credit card debts, car loans etc.

Imagine being in a scenario where you’ve made well enough money to take care of your outstanding expenses, but refuse to do so. And instead keep all that cash in your account.

Remember anything can happen during trading.

What happens if you get stuck in a halt that lasts for weeks like “LFIN” Stock??

And it opens 75% lower than you entered.

You are going to wish you had put some money aside.

Don’t be greedy. I always say trading is an opportunity to make money to funnel into other things. Whether it be safer investment vehicles or even if you only want to pay off debts, or just save for a rainy year.

Don’t work this hard to make money and have nothing to show for it because you kept all of your eggs in one basket.

 

 

 

Are you Realistic About Your Trading Profit Expectations?

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Money is usually the first thing that drives regular working folk into thinking about trading, which is fine. Then it turns to the freedom trading can bring.

Imagine waking up on your own time, working from literally where ever you want, deciding your own salary etc.

Obviously its enticing, but the out of all those reasons, i truly feel one of the most dangerous beliefs in trading is the belief that everyday will be a 75% gainer, or 100% gainer.

This belief usually stems from 2 major issues.

1.) Watching “Professional Traders” rave about there huge percentage winner.

This can be misleading because what people often do on social media is only post the good times, such as good winning trades. We rarely ever post the bad things, like a huge trading loss.

What this does to a beginner trader is it gives the illusion that you can only make money from trading and take no losses. It also gives the illusion that you can trade and only be making huge percentage gainers.

This is a very dangerous belief because it gives the trader unrealistic expectations when they hit the market. Its one thing to expect huge returns and only make “regular” returns. Its another problem when you expect to make huge returns and not lose, and then lose.

2.) Trading In Hindsight

I’m still guilty of doing this, but I have it more under control now. Lol.

This is where you look at a huge percent gainer from the past, and say “OMG, If I just bought 10,000 shares at $1.50 and sold right at the top…download

I WOULD MAKE OVER $100,000…

Ya, well your math would be correct, but the chances of you being able to hold 10,000 shares from bottom to top is not realistic. I’m not saying its impossible, but I have yet to see someone play a move like this perfectly WITH big size.

Most people wouldn’t even be able to hold through all those gains with 500 shares.

Its important to avoid thinking about hitting stock scenarios perfectly because these types of trades don’t happen that often. The trades that will take you to the next level will always be the most consistent trades you make.

They are the foundation of your trading profits, while huge percetage gainers are nice, they usually won’t turn you account from $10,000 to $250,000.

It will usually be the smaller gains that you rack up day in and day out that will reach you to your account profit target.

 

 

What 4 Reasons Cause Traders To Blow Up There Account?

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The dreaded account blow up. There may not be a worse event in trading stocks than to to run your account into the ground.

On the outside we think “that will not not happen to me” or “they are stupid to let that happen”. Well it can happen much more easily to any trader than you think.

It is essential that traders are always in a position to take a trade. Blowing up an account not only means losing a great portion of your account value, but it usually means a trader can’t participate in any more trading activity, thereby letting other great trades slip away.

I’m going to share the 4 main reasons why traders blow up their account so that we can be more aware of the scenarios that we are in, and hopefully prevent a blow up from ever happening.

1.) Addictive Trading.

This can also be referred to as over trading, but on a more broad sense, any type of trading that is done compulsively, or with no control. This is dangerous because of how quickly the losses will sneak up on you.

My first blow up account was do to me over trading. The worst part of it was that I didn’t realize how much I truly lost  until it was all said and done.

In total I lost about $700 dollars on a $1,200 account, in one morning, over the course of 5-6 trades I should have never taken in the first place.

Over trading was one of the factors that caused me to blow up, but there was another factor..

2.) Revenge Trading.

This is the main factor that caused me to blow up my account, and also a major cause of many beginner traders blowing up there account.

For me, it all started with a trade I held overnight. I was up about $30 dollars and was trying to close my position (with a terrible broker) and it took about 3 minutes to fill. My trade then closed out with a -$30 dollar loss.

I was so upset that my I just went from green to red just based on a ridiculous fill time. So I quickly tried to find a trade I could get into to make up the loss that I just took.

Well I took another loss which made me even more irate, then quickly jumped into another trade, with more size to try and make up for both losses…

Long story short, a $30 loss turned into a $700 loss by the end of the day….

That’s the cost of letting your emotions rule your trading.

3.) Trading Too Much Size

This is the main reason that kills the account of an intermediate trader. Someone who has been somewhat successful with trading and is now consistent.

He or she thinks they are so consistent now that they should now increase the amount of size they use by a drastic amount. For example, 1,000 shares to 7,500 shares.

They often do this without realizing that increasing size by this much isn’t as simple as they assume it to be.

There is an huge increase with P&L gains or loss, which can shake you out so quickly because you are only used to seeing your unrealized loss at  -$100 dollars when the stock goes down $.10 cents.

But now you are seeing an unrealized loss of  -$750 dollars if you now use 7,500 shares.

There is also slippage. So you can fill 1,000 shares at $5.00 fairly easily. It gets harder to get the exact same price for all 7,500 shares.

All these things play a factor in blowing up an account because if you are in a position with much more size than you are used to, then there is a high probability that you will panic and let emotions begin to do the trading for you.

You see a huge unrealized loss and start to think, lets let it come back, and because its bigger size, each down tick adds on to that panic, until…….BOOOM, 50% -100% of your account is gone.

Some will say that sounds exaggerated and it sounds to quick.

That’s how quickly it can happen, my friends.

4.) Poor Risk Reward.

There is a reason why real traders say you have to have at least a 2:1 Reward/Risk Ratio. it means you can have 2 losing trades and make 1 winner and it covers the losses.

What happens when a traders Reward/Risk ratio is off. He/She is now fighting to stay alive.

So many new beginner traders do it. We cut our winners quickly because we are happy just to be in the green and we fear it being taken away.

And on the other hand we let our losers run because we don’t want to take the loss and we pray that the stock will turn back in our favor.

This scheme will ultimately only return bigger losses than your wins which , if not changed, will blow up your trading account over time.

 

 

 

 

 

How Stock Traders Can Make Millions With Minimal Trades

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So this post is mostly to change the perspective of what we look at when we trade, especially the way we think of trading profits.

I’m going to put this spreadsheet out first, and then explain why I think its important to look at trading profits the way that its laid out in the spreadsheet.

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Now obviously there are going to be people who are going to say “THAT IS UNREALISTIC” and “YOUR GOING TO HAVE LOSES”.

Obviously your going to have losses when trading. Your most likely not going to be going all in on all your trades, and obviously your not going to hit your profit percentage every single time. 

I know, I understand. Now that that is out of the way, let me break down why I truly believe this chart is important.

When I  look at this chart, the number one thing that comes to my head is..

How little trades it took to get to those high profit numbers. I believe this is important because so many of us traders over trade, even when we think we’re not. 

The reality, it truly doesn’t take that much trades to get to the desired target you want.

I believe it is more about patience however. In that spreadsheet it shows that it took only 30 trades to get to get to to pretty ridiculous numbers, with varying percentage gains of course.

This is the power of..

Sticking to your setups, that also give you great risk reward. The reason why the numbers increase so quickly is not because there are a lot of trades being taken, its because when a trade is taken, the return is bigger than a usual day to day return.

So, you can try to take 10 trades a day and make $5,000 in a month, going back and fourth from winning trade to losing trade, which is fine.

Or, you can try and snipe those easy trades, those easy set-ups that don’t arrive as often as the everyday plays, but can provide huge returns.

I personally prefer sniping trades. For me, its less stressful and more rewarding. I don’t like being the trader who has to try and $.15 – $.20 cents on a position everyday. The sniper method is more calm and relaxed. Simply waiting for the opportunity

Would you rather chase around mice everyday to kill and eat?

Or would you rather sit up at the hill top with a sniper and patiently wait for a big herd of deer to cross your path. You don’t need to kill many, just one. Because that one will do much more for you than a months worth of mice you caught.

The other important aspect is having profit targets on every trade that make the “hunt” worth it.

Find plays that will pay out big if they go in your favor, and simply cut them when they don’t. Just because you have a bigger profit target in terms of where your exit is on the chart doesn’t mean you have to risk more capital.

You have the option to hunt “big fish” so you don’t have to stress about hunting everyday, Or trade everyday, as long as it fits your personality.

Obviously this is just my advice. If your personality is to scalp 50 times a day, I am not knocking that at all. As long as it works for you. I just think that a lot of beginner traders don’t truly understand that in trading, less can be more.

Much more than we think…

Why You Are Not Consistent With Stock Trading, And How We Can Fix It

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One the benefits of trading is that we can work from the comfort of our own home on our own time. We can wake up in our underwear,get a cup of coffee, and not stress about an hour commute in traffic on the way to a 9 to 5 job.

But having this much comfort and accessibility can also be a detriment to our trading career in the long term.

I have personally done this myself, and can attest to how poorly it cam affect your trading if your “freedom” is not tamed.

For example, when I got too comfortable with trading I would roll out of bed at 9:00 Am, rush to get everything set up, such as my broker and scanner platform.

At first I thought I could pull this off, but I quickly humbled with loss after loss. It was self evident that it was a direct correlation with me not having a plan prior to trading.

It was also do to me not having the same routine everyday that ensured consistency overall.

You can’t expect to live an inconsistent , out of order life but trade consistently and execute plans to perfection.

So in this post I am going to go over some questions that each trader should be asking of themselves to help ensure consistency and hopefully make you a better trader because of it.

What Time Do You Wake Up Each Morning?

If you cant answer this, it is a major problem, since the time you wake up is your first trial of consistency.

The time you wake up should somewhat reflect what type  of trader you are. For example, a lot of scalp traders can get away with waking up at a later time because they are less worried about pre-market and market sentiment. (I still recommend every type of trader know is familiar with both.

What Do You Eat For Breakfast In The Morning?

Diet will become a key role in how you trade because it can effect your mood.

Do you wake up and eat unhealthy foods riddled with grease, unhealthy fats and low nutritional benefits??

Foods like this will often leaving you feeling sluggish and fatigued (which has personally happened to me on many occasions.)

I would wake up and the first thing that would enter my stomach was left over pizza and a sugary soda. This automatically gave my body an insulin spike, and then when 9:30 EST time came (Market Open) I was crashed on the couch dead asleep.

In my opinion the food you eat in the morning should be on the lighter side, so that it doesn’t send your insulin out the roof and come crashing down later.

I usually start off with water and a smoothie made with bananas, different berries, a pinch of cinnamon and nutmeg, low sugar vanilla yogurt, almond milf and spinach.

When I drink it I feel full, but it doesn’t leave me feeling tired because it doesn’t have as much sugar as other fast food “smoothies”.

I also gain confidence knowing that I am continuously fueling my body with good healthy foods , and in return I know my body will pay me back for it.

Just the same as when you give your sports car the best fuel and tires available, the car will most likely give you optimal performance. Now you have more confidence because you know you get out what you put in.

Do You Exercise Before You Trade?

I love getting in a good workout before a trading session. Not something that is too taxing on the body that will make me tired throughout the day.

Enough exercise to get my body loose and gets the blood flowing.

For me personally it is a away for me to release any tension I may be carrying, as well as a release for emotional stress.

By the time I get home I definitely feel more calmed and focused on the next task.

Are You Taking The Time To Meditate/Pray etc??

Whatever your “thing” is, I firmly believe in mental exercise. This usually helps me with better decision making as well as sticking to my game plan, especially in high times of stress.

Do You Have A Consistent Gameplay Session? (Trading Plan)

By this I mean when its time to do your scans are you just picking high of day plays and that’s it?

This will usually cause inconsistency because there really is no in depth plan there.

A better plan would be to have a handful of stocks you selected either last night or pre-market, and decide first why these stocks are on your watchlist.

After you, you draw your trendlines. This makes it easier during the trade to see Support and Resistance instead of entering the trade and then trying to find support and resistance.

Then select which stocks have the best opportunity.

Now check if there is any news that will influencing the stock or will influence it later.

Set your profit target,entry point,and stop loss. Doing all of this will take tremendous stress off trading because you are almost making each decision mechanically.

Imagine trying to make trades on a whim, with barely any plan. You would basically be trading off of pure emotion which is the last thing you want to do.

When you ask yourself the 5 W’S (Who, What, When,Where, and Why), I want you to be able to answer each one of them with a distinctive answer for each W.

For example…

Who is trading them (think of volume, relative volume, float and short interest)

What stocks do you plan to trade? (Off of your watchlist or scans)

When do you plan to trade them (What time frame do you want to take action/entry price/exit price)

Where (At what price levels/where is support and resistance)

Why do you want to trade this stock (Why are you entering? Gap fill? Support and resistance play? Break out? News? )

The more you can answer these questions when asked of you as well as making your daily habits more consistent, the more you consistency trading wise should increase.

Have a wonderful day traders!

 

The Best Technique Professional Traders Use To Enter Orders

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I have no intentions of click baiting any body ever, so believe me when I tell you, this tip literally changed the way I traded for the better.

Most of the experienced traders use this tactic but as beginners its never brought up for some reason.

As a beginner trader or even intermediate trader we often get caught up with what broker to use, how much commissions are going to cost, which setups will be the best etc.

And those are all important factors to go over. But the step I’m going to talk about shocked me because it made so much sense but no a lot of people i followed would really use it.

To cut to the chase….Its Scaling In To Your Position.

Now some will say “OK, I’ve heard of that before, this isn’t new”. I am not here to claim that its new, only that its unspoken about.

Lets talk about why scaling in to your position is so important.

When we are ready to take a position we often think of entering how whole position at the exact price that we want. For example…

“I want to buy 2,000 Shares at $5.00 dollars  for a whole dollar break.” That’s all good and dandy, but the problem with this approach is that the setups that we are use to are not always exact.

So that price could actually go to $5.25 and then go back in your favor. However, most people would usually get shaken out well before it gets to $5.25, since there all in with there size.

I am going to give an example of a trade I did this week where I got stopped out because I couldn’t tolerate the draw down.

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As you can see above, I entered at $13.68 with half of my size because I got F.O.M.O (FEAR.OF.MISSING.OUT.) and wasn’t prepared.

I quickly shoved the order in, and because of that, when the price went against me, I had a big draw down for my position.

So I exited, just for it to top out $.20 cents above my exit and swing back down in my favor.

To make matters worse, it hits my profit target. This would have been a $500 dollar profit minimum, and a $1,000+ dollar profit if I had got my all my size in with a SOLID ENTRY.

Now, how should I have gone about this?

First things first, I should never have dumped half my size into the stock, especially at a price point that wasn’t close to the best price.

I should have started with 100-200 shares max. This would have allowed me to be involved in the trade but not sacrificing so much. I would be able to let the trade play out.

If I was only 200 Shares in and the stock hit 14.08 (where I originally stopped out), I would have been down -$80 dollars instead of -$200 dollars. This would allow me to continue to add as long as the stock was still showing signs of a reversal.

Second thing I would have done differently was start scaling in short on the pops, instead if on that dip. That’s was F.O.M.O (Fear.Of.Missing.Out) will do. All of your rules tend to get thrown out the window.

Remember, Buying dips or shorting pops will add to your profit and reduce your loses. See the post I had on that.

https://traderjournaljourney.wordpress.com/2018/08/30/1-tip-that-will-amplify-your-trading-profits/

Being able to scale in will give you a much better entry most of the time because you have multiple chances to get a better price. That’s the key.

You throw your starter order out, maybe its a good entry, maybe its not. It doesn’t matter, you have 3-5 more tries to get a better price average. That’s the beauty of it.

And because you have multiple tries, you will be less stressed and less tense about entering the position.

This is just the beginning of me speaking about scaling in, that’s how passionate I am about it.

Take care for now, and I hope this helped!

If you have any questions, feel free to leave a question in the comments, or email me.

Have A wonderful day!!

 

 

 

 

1 Tip That Will Amplify Your Trading Profits

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As we traders try to find any advantage to take home more profits, its important to realize that every second matters when it comes to getting the price and entry you want.

One mistake that we all have made as beginner traders is to do the opposite of “Buy the Dip, sell the rip” or “Buy Low and Sell High”.

It all sounds very simple, however in real time it is not that simple. When you are trading real money your emotions will often want to take over your rationale.

What really happens is you see a stock you are interested in and you say “oh my goodness i love the way this is setting up.” Now its time to enter, but….

You hesitate. You want to see more confirmation.  Maybe just a little bit more. The price you were suppose to enter is now leaving you and each tick that is  going in the favor that you wanted is now making you do the following…

1.) Make you feel bad about not entering when you should have

2.) Makes you feel more confident in entering because it continues to move in your favor

3.) F.O.M.O (Fear of Missing Out). You now regret not entering + you feel that the stock will continue to go higher. you think “why would I sit out of this trade when its doing what I want it to do”

What then typically happens is the stock you now enter late into now reverses, whether it be a pullback or a straight dump. This now makes you nervous especially if you have big size on.

More often than not, you will be shaken out of the trade for a loss. Then to make matters worse, the stock you now exit out of now reverses to go back in your favor.

Typical, right.

These 3 reasons in my opinion are the main reasons why so many new traders end up buying at the top.

I have done it plenty of times as a new trader so don’t feel bad. We were all new at some point.

The main key that was explained to me was that …

We do this because it is human nature to want to see confirmation first before we take risk. So when we see the stock continue to climb without us, the more tempting it is for us to jump on late.

Perfect example: Bitcoin at $17,000-$20,0000.

Now, whats the solution?? Buying at the times when its uncomfortable.

Simple but difficult at the same time.Let me explain some more.

When you have a stock that you are interested in and you want to buy it,  the best time to my is usually during a pullback. That means when the stock makes its move upward in a volatile manner , you don’t buy into that move.

You buy the pullback because it is literally buying at a better price. That is the way you have to think.

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In this picture above, you will see where I recommend to buy and where not to. In the moment it will be hard to buy the dip for beginners , but think about it like this.

In the first area there is a difference of .37 cents from the the top at $2.00 from the bottom of the pullback to $1.63. If you bought the top with 5,000 shares and were waiting for it to come back above 2 dollars, that pull back would have made a draw down of -$1,850 dollars.

Ouch. -18.5% On your position. (5,000 Shares X $2.00 = $10,000….($1850/$10,000) X 100 = 18.5%

Compare that now, if you Bought at $1.70 for 5,000 shares. The most you would have been down would have been $350 dollars.

Also, if the stock still went lower, maybe $1.50 lets say.

You still would lose less money than the person who bought at the top, since you average price is lower.

Buying dips or pullbacks will literally make you more money if the stock goes in your favor, and still save you more money if the stock goes against you.

It just takes time to get use to it, but overtime it was one of the most beneficial things you can do to enhance your trading.

 

4 Important Reasons for Trading Through Different Market Conditions

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We often hear people ask traders, ” Are you a bullish or bearish trader?”. Almost everyone has a specific favorite between the two choices.

Some of us prefer the Bullish side (Long/Buy) because we like the idea of simply buying shares when we are ready to make the decision instead of worrying about “Is there any shares to short left?”.

Some of us prefer the Bearish(Short/Sell) side because we love the total collapse of a stock once it starts to fail. What ever the choice is, it is still a good idea to at least understand whats going on, on the other side.

What many traders don’t realize is that us as traders often will mistake our “preference” for the Short or Long side, with trading in a Bullish or Bearish market.

You start trading one day and after a while you convince your self that you enjoy buying much more than selling when in reality, the market conditions at the time are just better suitable for Long biased traders because the bullish market will give you more opportunities to buy and be correct.

It is important to understand your reasoning for choosing your biased, as well as trying to be a more well rounded trader.

Here are 4 Reasons why I believe it is crucial for all traders to trade through different market conditions.

1) You Truly Don’t Know How To Trade Until You have Experienced Different Market Conditions.                                                                                                                   

 I believe this wholeheartedly. Its very easy to pursued yourself into believe you are a top trader because you can make great profits in a market that is trending in your favor.

However, what is the common trend that happens to the type of trader who thinks like this? When the market turns against them, they don’t keep their money. They more times than not end up blowing a big portion of it.

Why? Because they think they can trade the same way through any market trend.  The truth is the best traders know when to step on the brakes, and when to turn on the gas.

This leads to point number #2.

2) You Will Understand The Right Time To Be More Aggressive, and The Right Time To Be Conservative With Trading.

This is one trait of great traders that many people seem to overlook. This is how the great traders you look up to are able to profit a lot for a certain time, and then suffer much smaller losses over time.

They realize that you can be 100% aggressive at all times, because the market changes. Its no different than Steph Curry or most great basketball player. They can often tell within minutes of playing that today is going to be “one of those days”.

A day where he can shoot more than usual, or attempt more outlandish shots because the first 5 shots he took were all perfect. So they may average 25 points per game but in this game they think ” I am going to go for 60 points” because they know this day, “my shooting looks better than average/ my shooting is far into my favor”.

This is no different than the stock market being in your favor. If you are a long biased trader and the markets are bullish, plus you are seeing stocks do ridiculous moves, 50%, 100%, 200% gains, this should be the moment you say, ” its time to be more aggressive” and size in a bit more than usual.

When the market is not in your favor, and only 1 or 2 stocks are barely making 25% moves, then this should be an indication to use less size than usual, because the likelihood of you losing on bullish opportunistic is higher.

3) In Can Make You A More Profitable Trader/ More Well Rounded Trader             

Well this should be obvious to most, but in case its not , its alright. Explanation incoming. If you can learn to make money in both a Bullish market , but ALSO a bearish market, it will instantly make you a more profitable trader, instead of being the trader that is only great in a Bull market but absent in a Bear market.

Another basketball analogy coming. The top NBA players are usually never one sided players. They’re almost never strictly offense or strictly defense.

Obviously there is your occasional one, but for the most part the top players are great at either offense or defense, but still really good at defense. Michael Jordan, Kobe Bryant, Lebron James, Shaquille O’neal, Wilt Chamberlain etc.

On top of that, because you they are not only top players, and that can play both sides (Offense and Defense) they are usually the players that get paid the most dollars (Lebron making close $80 Million in 2018).

Why?? Being well rounded means that you are present in the market, the  same way a multi-purpose player gets more playing minutes. More presence in the market means more opportunity the same way more playing time often means more points and other stats.

4) People Will Look To You For Advice More Often Then Your Competition. 

This is mostly for the traders who plan to open of services , blogs, YouTube channels, etc.

The more you know about different market conditions and the more you can prove that within any market you can not only survive, but make great money on either end, the more people will want to buy your product, ask for your advice, or recommend you to other beginners.

I use to watch a particular trader on YouTube religiously. Until I realized that when the market turned he was basically absent, which is fine, but it made me go search for someone else who was proving they could make money in a time when the YouTube trader couldn’t.

Your business side of trading will do much better if you can show customers that you are capable of showing them both sides of the game. Bullish and Bearish. Offense and Defense.

Penny Stocks vs Higher Priced Stocks

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As a beginner trader one of the toughest decisions to make is choosing your niche. Your time window you choose to trade in, the assets you want to trade, the broker you want to use, and more.

One of the hardest decisions a stock trader has to make is if they choose to trade penny stocks, or higher priced stocks. This can be especially difficult for traders who intend to use small accounts.

Below I am going to list the pros and cons of both penny stocks, as well as higher priced stocks.

Pros of Penny Stocks

  • Cheaper Shares.                                                                                                                      This is most likely the biggest reason why many traders decide to trade penny stocks. The cheaper the stock, the more shares you can buy. The more shares you have, the less of a dollar value move the stock needs to make money. For example;

2 Traders (John and Jenny) have $2,000 Accounts each. John buys Stock “EFG” for 1000 shares at $1. Jenny buys Stock “ABC” for $20 shares at $50. If both stocks move $1…

John just made $1000, but Jenny only made $20. This is primarily due to the percentage move that just happened.

Both stocks moved 1 dollar, but the stock that John traded just made a 100% move, vs Jenny’s stock which made a 2% move. This directly leads to the second pro of penny stocks..

  • Bigger Percentage Gain.                                                                                                 Penny stocks unlike other higher priced stocks are much more likely to see 50%, 100% even 200% gains if the right market conditions are among us. It is much easier for a stock to go from $1 to $2 than a $50 stock to go to $100. This is typically because a lot of smaller priced stocks have smaller floats. People are aware of this and try to take advantage of the possibility of a big percentage return.                                                 Bigger percentage moves X More shares = More profit

 

  • Faster Moves/More Explosive Moves.                                                                           This is referring to how fast the shares will often rise. In the chance that a $50 stock does go to $100, is will usually take some time for that to happen. Usually “bigger floats” require more volume to make the moves they need to make. For the same percentage move on a one dollar stock, its not uncommon that the stock can hit that 100% move in the same day. Simply because of all the attention it attracts being so cheap, plus not requiring  a massive amount of volume to move.

Cons Of Penny Stocks

  • Extreme Volatility Can Be Your Enemy.                                                                    While volatility can be your friend if the stock is in your favor, it can be your worst nightmare when it goes against you. For the exact same reasons that make a lot of penny stocks do insane moves ( small float, cheap shares, more attention), these things will work against you when the stock turns the in the other direction, especially if you are longing (buying) these stocks.

 

  • More Commissions.                                                                                                         Depending on the broker you use, buying lots of shares can cost you a lot more in commission over time. The broker that I use charges about $5 per 500 shares (buy 500 shares + sell 500 shares = $5). This means to buy 2000 shares of a cheaper stock, it would cost me a total of $20 dollars. Yikes. Compared to if I bought and sold 200 shares of a higher priced stock, it would only cost me a grand total of $2 . With that low of a commission, I wouldn’t even hesitate to get in or out. However, when you have higher commissioned pricing, you start to hesitate because you most likely don’t want to lose that $20 , just to try and get back in later and spend another $20. *This most likely does not apply to brokers who have a flat fee for commissions

 

  • Halts Happen More Often.                                                                                                    In penny stocks, because they have the tendency to make huge moves in such a small amount of time,  they are often halted by the sec for small investigation. Halts can take place for 5 minutes, 10 minutes, 20 minutes, all the way up to months. I’ve personally witnessed traders who have been stuck in a halt that lasted over month. Imagine your hard earned money being tied up, not knowing when its going to be released, if at all. As well as you not knowing the price the stock will open up at, its a huge risk some traders are willing to take.

 

  • More seasonal/ Periodic.                                                                                                    The penny stock world is known for droughts or hot and cold streaks that can last for awhile. Obviously the entire market fluctuates throughout the year, but for the most part there will always be higher priced stocks in action because of how many there are as well as the price ranges. I consider higher priced stocks to be priced between $10 and $300. Obviously there are higher priced than that, but the majority seems to be within that range. With penny stocks, you could have incredible moves for 3 months, but then barely anything for 6 months. This is fine for a trader who doesn’t mind that break, but the most of us prefer something a bit more consistent.

 

  • Less Trustworthy.                                                                                                                Penny stocks are usually penny stocks for a reason. The lower price indicates to me there value, as it should. There is a reason why Google, Apple, Amazon and Netflix prices for there stock are on the high side. Because of the cheap prices of penny stocks, traders must be careful of trying to hold them overnight. Penny stocks have a much higher chance of being desisted than higher priced stocks, or losing the majority of its value overnight. In no way am I saying that bad news or bad situations can’t happen to higher priced stocks overnight, but i would definitely be more skeptical about holding penny stocks overnight.

Pros Of Higher Priced Stocks

  • Less Commission.                                                                                                          Depending on the broker you use, trading higher priced stocks with smaller size with cost you less over time rather than buying or selling tens of thousands of shares. Some brokers do charge on a trade by trade basis with a fixed rate, so in that case it will not matter how much shares you use. But if you do have a broker that does charge based on share size, then it will be beneficial to trade higher priced with less size because you can get in and out of a trade whenever you see fit.

 

  • More Trustworthy To Invest In.                                                                                  Higher priced stocks can often be actively traded as well as invested in because of the trustworthiness of the company behind it. Stocks that are higher priced are usually priced that way for a reason; because the company has value. You might not ever see Amazon or Google just disappear overnight like a lot of penny stocks do.  Yes there are higher priced stocks that will have bad news and will lose 10%,20%, 30%, but in my opinion it is much less likely to happen in the higher priced region verses the penny stock world.

 

  • Moves Are Slower.                                                                                                              Now, some traders are going to think this is a bad thing. Well it depends what your tolerance is. There are traders that love the super fast spikes and dips in a stock, but that requires a lot of patience and quickness at the same time. There are other traders who prefer to allow there position to calmly go in there favor. Slower moves means that you have a heightened ability to stay relaxed through certain moves, unlike a lot of penny stocks where they can be so volatile that  they shake you out of the position before the move even got started.They don’t mind if it takes hours, or days for their target to hit, they will gladly sit through it and prefer it that way.

 

  • All Year Round.                                                                                                                    About 3 out of 4 stocks follow the overall market and these and to be more higher priced stocks. Unlike the penny stock world that seems to be steaming hot one month and then completely absent the next 2 months, the higher priced stock world has more consistency behind it. That doesn’t mean that they are always going up. It could be a bearish market, but even then it often means there will be something to play on the short side. All markets will also also have a dip in volume around the summer time but even then, there are usually still higher priced stocks to play, just not as much as there were during September to march.

 

  • Halts Less Often.                                                                                                                Halts happen less for higher priced stocks for one major reason; They rarely ever have those huge explosive percentage moves that the penny stocks have.                     Remember, a $5 dollar move on a $1 dollar stock in 2 minutes appears to be way more suspicious to regulators than a $5 dollar move on a $50 dollar stock.Its not about the dollar increase, its about the percentage move that will often trigger the halt.

 

  • More Range.                                                                                                                            This sort of makes up for the lack of explosive moves that the penny stocks tend to have. Traders are often under the illusion that when you buy higher priced stocks that the profit potential is no longer worth it. I am guilty of thinking that way as well in my earlier days. The truth is that high priced stocks have tremendous range since they are higher priced in the first place. Remember 5% on a 1 dollar stock is only 5 cents, but on a $50 dollars stock 5% is $2.50 dollar move. If you ask me, I would rather put 100 shares into a $50 dollar stock($5,000) and try to get the $2.50 dollar move to make $250 rather than putting in 5,000 shares into a $1 dollar stock ($5,000) and hope for a 5 cent move to make that same $250 dollars.

Cons of Higher Priced stocks

  • Higher Priced Stocks Require More Money.                                                                      This is the only real downside I see to trading higher priced stocks. Since they are higher priced, you need a higher amount of money. Now, what I did (And i’m not recommending it) was use margin. There going to be traders who will tell you don’t, but when i am trading 100 shares of a stock on margin, you can easily manage your risk compared to you using margin on a penny stock.                                                                                                                                                                                                                  I would recommend that you NEVER USE MARGIN ON A PENNY STOCK.  It is much harder to manage with a high amount of shares, High volatility, as well as increased risk for a halt. This is not advice telling you to use margin however.

At the end of the day, you have to choose what decision is best for you.

The Good, The Bad and The Ugly: Stock Chatrooms

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If you have been in the trading community for a while, then you have most likely come across the world of “chatrooms” before. This is where you can find a group of traders who typically trade together at market open and spit ideas back and fourth about possible decisions each trader might be making or stocks they have interest in.

There are a lots a trading chatrooms on the internet that will try and persuade you to subscribe to them for a cost, and in return they often make plenty of promises to make you a better trader.

On this post, I am going to run through some pros and cons of stock chatrooms. The goal is to make you self aware by helping you distinguish the difference from a good stock chatroom, and a scam chatroom.

Pros of Stock Chat Rooms

  • Trading Community.                                                                                                                 I believe this is one of the most important things to have while trying to trade stocks, especially if the goal is to trade full time. Trading can be lonely, especially if you are trying to do it by yourself. Having the right chatroom can give you that sense of family when you wake up to trade. You get to know people and there different personalities along with their trading styles. Some chat rooms even do monthly meet ups to put a face to the names.

 

  • Advice.                                                                                                                                     You could be a novice trader or a an experienced trader. Somewhere down the road you are most likely going to need advice, and the sooner you can ask for it, the better. There are a some chat rooms that have members and moderators who are very helpful and if you have questions they are often glad to help. They are often glad to help because they too were once in that position.

 

  • Mentoring.                                                                                                                           Some chat rooms offer paid mentorship for private sessions. I would test drive the chatroom first before doing this however, just to get a feel of the room and to make sure the moderators prove to be knowledgeable about trading.

 

  • Shadowing.                                                                                                                            This to me could be the most beneficial pro of a chatroom. However not to many chat rooms provide proper shadowing. What i mean by shadowing is a chatroom where the moderator ( hopefully a successful trader) actually shows the memberships when hes buying and WHY. Not simply alerting members when hes buying, but actually teaching them the method for coming to the conclusion to buy or sell.

Cons of Stock Trading Chat Rooms

  • Fees.                                                                                                                                         This really grinds my gears. I understand that traders are trying to make extra income on the side, but some of these monthly fees for chat rooms are absolutely ridiculous. $300,$400, $500 dollar and up per month to just be in a community with other traders. I mentioned earlier that it is very important to have a community in trading, but with hefty price tags like that, i’m sure you can find cheaper trading buddies. For those prices the chatroom needs to be able to actually teach you how to trade for real, not just follow alerts.

 

 

 

  • Pump and Dumps.                                                                                                                The good ole pump and dump chat. For those who are unaware of what this is, time to break it down in simple terms. Group of people, or just one person decides to open a trading room where they promise to give you the best stock picks, or to alert you whenever they are going to buy. GREAT!!. It sounds sooo enticing to beginner traders. They wouldn’t have to do research, look at the market after hours, make hard decisions. Why would they when they can just buy and sell the same time as the people running the chatroom. The problem in almost all cases is that the people that are running the chatroom are simply going to buy ahead everyone else without telling them, and then give them a later alert so that the heard of members can push the price of up in the favor of the moderator of the chat room. The moderator then sells into the push and leaves everyone else holding the bag as the stock dumps, and it almost always dumps, leaving the majority of members with a loss. Those members will quit after awhile, but there are always incoming new members, so its an everlasting cycle.

 

 

  • No Self Reliance/ Independence.                                                                                    This is characteristic that any chat room can inflict on traders if the trader is not self aware of it. Traders who use chat rooms often becoming way to dependent on the chatroom, to the point where if the chatroom were to vanish into thin air, the trader would literally be in a world of hurt because he/she is unaware of how to trade for themselves. Being in a chatroom, especially at the beginning of your career can make a trader believe that trading is so simple because trading in a chatroom requires nothing but following the person charge. Then when that chat room is gone, it becomes a rude awakening for that trader. It is better to use the chat rooms after you develop the ability to trade by yourself, and then you can use chat rooms for extra tips and support.

 

  • Stuck Up/Not Helpful.                                                                                                             In the Pros section I mentioned that some chat rooms can be helpful for advice and shadowing. Well, here is the other side; a lot of people in these rooms are stuck up and arrogant. I’ve been through my fair share of chat rooms and what I witnessed, in my opinion, was borderline bullying. We were all new traders at one time, so it literally tears me apart and makes me angry when a new trader comes to a chatroom of more experienced traders and is getting dragged and humiliated because he simply asking questions. I’m sorry Bill, we all didn’t come out of the womb knowing all there is about stock trading. It may seem dramatic, but learning to trade is very intimidating in itself, so that first thing you or any normal person would do is ask for help. I recommend that if you are on the beginner side of trading, that you find a more friendly chat room where the members want to help each other grow, not tear each other down.