Outlined are tips for Stock Trading Success, follow them and you will be well on
your way to consistent profit.
While we can offer advice from the perspective of a “market veteran,” sometimes it is easier for one rookie trader to hear things explained by another rookie trader. This was an article written by one of users: Angell. While we’re not sure we’d consider her a rookie trader anymore, we think this article is helpful, well-written, and easy to understand if you don’t have alot of experience trading.
“The following tips and tricks are things that work for me as a rookie trader.
Stockhaven said in class, “It is important to understand where the points of support and resistance are for each stock as it is moving through out each trading day.” To see this done in real time, watch this video. http://www.stockhaven.com/
Points of support are prices that a stock has traded before. Often many times. When you look at a chart, it is where the stock naturally keeps bouncing off of and begins rising in price again. Many times this will also be key technical numbers such as the previous days closing price or the lod (low of day), but it can also be a previous low of a recent sideways intra-day trading range. The price will continuously bounce near or on a price and raise again to bounce off of a high price that has become resistance, making a trading range for the stock.
One pattern that we are looking for, is if the stock is able to push up thru that resistance price, on high volume, as it will often run towards the next resistance price giving us an area of profit. We look for the best suspect to be the previous intra-day high, or possibly the previous days high, and if the stock is making a bounce off of a recent downtrending bottom… we can look to a previous week, month or quarter as good markers to look at as support or resistance levels. This is often what a 20, 50 or 200 dma (daily moving average) mark has also become.
So when looking to trade for a profit in a stock, we don’t necessarily just look for a 10% or 15% or 20% rise from where we wish to buy. We are looking at resistance and support levels… and judging whether there is enough distance between those for us to take a profit. We also will wait instead of necessarily buying at the lowest price, to watch the stock and see if it breaks thru it’s recent resistance price… because that is where we very often can catch a bigger run-up for profit gains, again judging by previous resistance levels.
If on a days opening, the price gaps up and you either miss it or didn’t get your order filled… don’t chase it, because it will very often come back down to a support level of, you guessed it, the previous days close or that days opening price. And then, often within the first hour of the trading day you have bought into the stock at a very nice price for the bounce back up. The best times to work this pattern in day trading penny stocks, is the first day or possibly the first several days of a newly promoted stock. Be aware, though, that the third day may be trickier to catch because a lot of interest has already been played. If you are trading with $500 to $1000 of capital, it may be best then to revert to trading breakouts of resistance levels or even passing this stock by and waiting for the next promoted stock when the moves are more pronounced. It can be very hard, when trading with small amounts of capital to wait when traders who have much more capital can and do trade the smaller moves.
Use your calculator. This is all about how many shares your capital can buy and how big of a move the stock makes, which determines the profit you will make on a trade.
Stock ABC is trading at .03. You have $500 plus another $50 buffer for commission payment.
To find out how many shares you can buy, divide 500 by .03 = 16,666.66. Because there is a seller out there you want to buy those shares from, don’t buy a strange number like that. It could be a reason that you aren’t getting your order filled as well. It’s just too strange a number for the market makers to match you to. A much better number of shares is a common number, a more round number, like 15,000. It is desirable to buy the most shares that you can with the money that you have decided to use for a particular trade. Dropping to a rounder number also helps keep you from over-extending and “going all in”, never a wise choice. If the trade goes against you, then you have too much risk of all of your trading capital and may have to go work at Mickey D’s to build your account back up to a tradable amount. Don’t laugh, it happens more often than you might think!
Ok, so we have an opening trade idea. Don’t push that buy button yet. Stockhaven trading includes knowing where you will sell, before you buy because by doing so you keep that most dangerous thing to your capital at bay…. Emotion. If you know where you will get in and know where you will get out…. That is your plan. Trade it and always make a plan and trade your plan. That is the path to consistent stock trading success. More traders incur their biggest losses because they followed emotion and jumped into a trade without a plan. Experienced traders have used their calculators long enough that they can gauge the numbers, because they are familiar with how much a 10% move is when they have 10,000 shares, 20,000 shares, 50,000 share. They have memorized it by trading it so many times.
So we have decided to use $500 on a trade for ABC. We find our entry price close to where it is trading by looking at support and resistance levels and have chosen .03 as our entry price. We divided our 500 by .03 and found that we can buy a round number of 15,000 shares. Knowing that the cheaper the stock the smaller the move is generally, which is confirmed by looking at those support and resistance levels on the chart, we see that resistance is around .038. So we get the calculator back out and first multiply our 15,000 shares by .03 our projected buy price. That equals 450. It will cost us $450 plus commission which can be anywhere from $5 to $35 and that is why I always leave a buffer at these prices of $50 to make sure. Our anticipated exit price is .038. So we then take 15,000 shares times .038 and that equals 570. So if our trade executes as planned, we will sell for $570. We bought at $450 plus the added commission of say $7 flat trade plus the typical half % of the principle which is $2.25, making our commission $9.25. Add those together and we have spent $459.25 to get into the trade and expect to make a total price of $570 on selling the trade. $570 minus the $459.25 = $110.75 our expected gain for the trade. This is a realistic trade. Don’t forget that there is commission on the sell side of the trade, too. It is automatically deducted from your gains.
Let’s see what happens at a different stock price. Remember it is “price of stock, how many shares, and price at sell” that determines your profit on the trade.
Stock BCD is trading around .30 and we have determined by looking at support and resistance levels that .30 is a desirable entry price. We have decided that we will spend $500 to get into this trade. So we get out the calculator. 500 divided by .30 = 1,666.66. Again that is a strange number of shares to buy so we drop down to a rounder and more tradable number of shares like 1500. Take the number of shares, 1500, times the price of the stock, .30 = 450 and that is the cost of the shares. Add commission, flat rate of $7.00 plus one half percent of the principle money being spent of $2.25 = 9.25 and add that to the price of the shares = $459.25 for the total amount spent to get into this trade. We see that a resistant level is around .38 and determine that as our reasonable selling price. 1500 shares times .38 = 570 or $570 price we get for selling the stock. Minus our costs of $459.25 = $110.75 a reasonable gain.
Let’s try just one more.
$500 trading money
CDE stock – our determined buy price = .05
500 divided by .05 = 10,000 this is a nice round number so we’ll use it.
10,000 x .05 = $500 plus commission $7 and one half % principle of $2.25 = $509.25
This stock however, is showing resistance at .057. It has bounced off of that price several times and pulled back so that is a reasonable assumed sell point.
10,000 x .057 = 570 or $570 sales
$570 – $509.25 = $60.75 and your exit commissions have to come out. $60.75 – $9.25 = $51.50
Hmmmm…. For me that is getting very thin on the risk to reward scale. Especially if the $500 range is all the capital I have to trade with. I might look for a better trade at this point. That is one of the things that is elemental for you to decide. You watch in chat and others are trading this stock. What you have to decide is if this risk/reward is a trade you wish to make. No one else can make that for you. They may be trading fewer shares, they may be trading with more capital and thus more shares. To preserve your trading capital for future trading… you must determine if this is a good trade for you. If it isn’t… then sit this one out. That is one of the hard things with such slender trading capital. Another consideration is the 3 day settlement rule where once you sell… you must let that money settle for 3 trading days after the day you sell before you can trade again. If you make this trade and are sitting out watching everyone else trade… another wonderful stock opportunity make arise, leaving you on the sidelines, wishing that you had waited for this better opportunity. It is best to not let the emotions and excitement of joining everyone else in every trade as often as possible, if that trade doesn’t propel you higher and higher in gains to the place that you too can trade like that. It does take time, but if you will plan your trade and trade your plan, you will get there faster than you could imagine.
One more thing.
Let’s go back to making the decision on entering a trade.
You are looking at support and resistance levels. You are observing volume fluctuations. Now you have decided an entry price and a realistic exit price. Whoops, the stock has moved since you first looked at it and is now trading 7 points higher. In fact it broke thru the resistance level that you had observed for it. Now you must re-calculate number of shares that your $500 can buy and look for a new exit price based on different resistance levels. You might have to go back a week earlier to find that new resistance level. And that takes even more time. And the stock is moving in price. I use something I call my training wheels.
I have 4×6 index cards that I have previously filled out with ranges from .02 to .09 and using $500. I calculate how many shares can be bought at each cent and half cent levels and the price x that number of shares.
This allows me to see at a glance how many shares to put in the order, what my gains will be in a spread anywhere along those price ranges and if the trade is worth getting into. Remember it is your principle dollar spending amount entering the trade, entry stock price, how many shares that buys, and how many points the stock moves, that gives you your profit. You will have to make a card for each level of principle spending dollar amount. A card for when you are trading with $500 another when trading with $600 and another one when you begin trading with $700. You can make another whole set range using .10 to .19 stock trading ranges and a third using .20 to .29. In my opinion, that is the highest stock price that is feasible for a principle trading dollars of $500 to $700. It is tedious making the charts but it really pays back in having a tool that lets you know instead of guess what you are risking at certain entry and exit levels. This is only training wheels. As you become more and more familiar with the procedure, you will begin to see on the fly, all of these trading prices and levels and make your decisions. These cards also help me to avoid trading the dreaded emotion that has decimated my trading account. I have something concrete to center my attention to and make predetermined pricing decisions, knowing that the math has been correctly figured while I was calm and focused.
Hope that this is a help in your beginning days penny stock trading…
Don’t forget all of the many tools that Stockhaven.com has available to you.
Trading University has wonderful real time videos, many other articles on trading.
And as always, relax and have fun!”
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