Trading Penny Stocks: Patience is Required

Whether you’re a speculator looking to buy penny stocks, or even if you’re simply paper trading a certain penny stock for practice, the importance of having patience cannot be over-emphasized. There’s a direct correlation between the level of patience you have and the amount of emotional stability you’ll be able to maintain when trading penny stocks, or any other market for that matter. While Forex is a much higher speed market, with lightning-fast fills and mercurial changes in price (like my use of the word “mercurial”?), the penny stock market, although volatile as heck sometimes, is still somewhat of a market that you have to practice the skill of patient waiting. I can say this from experience across the board, having traded all kinds of different markets (Forex, commodities, options, stocks, penny stocks, etc.), and there’s not one market I can think of that a price move happens as quick as you’d like it to. That’s just the nature of the beast, so to speak. Once again, it’s a matter of letting the market dictate to you what it’s going to do, rather than trying to “force” the market to do something (think Nick Leeson and the Barings Bank debacle).

So what do you do in the meantime, while you’re waiting on the big market move? Dude, get a soda, go see a movie, do something besides sitting there looking at every tick or blip on the trading screen, or obsessing over each little move up or down in price. What’s that old saying…”A watched pot never boils.” This is so true. While you’re sitting there, watching the pot and waiting for the water to boil, it seems like forever, but as soon as you break away to go check the mail or do something else, all of a sudden you come back, and the water is just boiling away. I have (finally) come to the place in my trading career where I don’t even look at the market every day. I may check the closing price for the day, but that’s it. No more intra-day analysis, or any foolishness like that, when I know the average penny stock I pick is not going to make its big move within one trading day. Nothing wrong with those who are day traders; I just found that that style of trading was much too stressful to me, and turned me into somewhat of a “trading screen junkie”, fiending for the next uptick or downtick. Nowadays, I analyze a stock chart, select my entry point, place my trade when my trigger is hit, and then let the chips fall where they may. If the trade works out, cool, and if it doesn’t…hey, still cool, I was only playing with money I could afford to lose. Once again, I am not an investment advisor, and will never purport myself to be one, but I will give this piece of wisdom to anyone who reads this: NEVER trade with money that you cannot afford to lose. You will find that your emotional attachment to that money, brought on by the added pressure of the thought that this particular trade could either “make or break” your financial situation, is far too much for you to handle, and that pressure WILL cloud your judgment, where you make hasty moves or wrong moves (sometimes they’re one and the same) and you never develop a sound, disciplined trading methodology, which is exactly what you need to trade penny stocks successfully. Impatience many times can come from the feeling that you have to make money "right now" due to some pressing financial obligation or some desperate financial situation. If you're trading in this manner, dude (or dudette), you're putting WAY too much pressure on yourself, and you need to really examine why you're even in the markets. Is it truly to apply sound investment principles in hopes of getting a solid and consistent return, or is it to play the markets like the lottery?

So again, before you start looking for penny stocks to buy, ask yourself this: Am I patient enough to wait however long it takes to see the price move happen? If not, pass the opportunity up, because frankly, you’re in the wrong business.