Bladdaow!

Obviously everyone wants to make money every time, but there is a real advantage to keeping profitable penny stocks.  When stocks have a higher volatility it is harder to predict the direction and your losses can stack up faster than your ability to stay in the game.  If you’re only using the penny stocks as an investment you can wait longer, but losses are hard to recover from.  As the common saying goes (and mathematical truth) a 50% loss takes a 100% return just to get back to even.

After I bite the bullet and buy penny stocks, there are two common tricks I like to employ to help keep my winning penny stocks and dump the losers quick.

The Stop Loss

When dealing with very volatile stocks you can minimize the down side risk by simply selling out without question and a basement price.  There are a couple methods for choosing what your stop loss should be.  One is to use technical analysis to find a price support.  Moving averages will often make good support prices.  I place my stop loss about 1% underneath the support price so that I can be out of the stock if it stats falling fast.  The other choice is the maximum I’m willing to risk on any trade which I always say is 2% of my trading portfolio.

Phasing Out of the Stock

My next favorite trick is to not sell all of my winning stock trade.  As the stock rises I’ll sell half the shares to lock in some profits.  If there is another strong surge I’ll sell half the remaining.  I’ll just continue this up a big push until I have so few shares left that it’s not worth the extra trade.  Some investors even put extra money in on a strong up price to really bet on current profitable penny stocks.