Trading Penny Stocks Online: Technical Analysis and Trading Principles

You know, as I go along blogging about trading penny stocks online, I realize that there have been plenty of times where I would post about certain things where the actual mechanics of trading are concerned that probably demanded more detail, but I just either didn’t feel like going into it at the time, or maybe I hadn’t researched it thoroughly enough for myself to make any kind of intelligent commentary on it. If I can tell everyone in cyberspace one thing, it simply is this: I’m a guy who keeps penny stock trading very simple. I don’t get mixed up in a bunch of indicators, Williams %R thingies, moving averages, MACD stuff, advance/decline stats, short interest, etc., etc. I do my best to keep things as simple as humanly possible, and I try to avoid anything that has the potential to cloud my judgment due to ridiculous complexity or “sophistication”. One thing I’ve learned is that in the markets, you either win or you lose. There are market analysts, market commentators, trading gurus, and on & on, but at the end of the day the markets themselves will teach you the best lessons you could ever hope to learn. My advice to the beginning trader is to not fear losing money, because if you do, be prepared to kiss it goodbye in the most disheartening of ways, as you make trade after trade being governed by your emotional reactions to the markets instead of by the actual price action that you see right in front of you. Emotional trading has been many a trader’s downfall (myself formerly included), and some leave the trading game altogether with the “sour grapes” mentality that the fox had in that old Aesop fable. For those who maybe didn’t grow up seeing the Aesop’s fables cartoons in the early Eighties, basically the story is that the fox kept trying to reach these grapes on a vine, but they were always just slightly out of the fox’s reach, no matter how hard he tried or how many different ways he tried (this is a VERY loose paraphrase, trust me). At the end of it all, the fox just simply gives up and walks away from the grapes, making this comment: “They were probably sour anyway.” I can’t tell you how many times I have had trading experiences like that. It took me years to finally arrive at a stable emotional condition, where I wasn’t too attached to my money, to where I could actually think straight enough to trade worth a crap. If you’re losing in the markets WAY more than you’re winning, trust me…it’s not really the markets that are the problem. I’m not trying to offend you; I’m trying to tell you that you have become your own worst enemy in some kind of way. There’s something you’re doing to sabotage your efforts to make profits in the markets. For some people, it’s a deep-down sense of unworthiness, like if they made a ton of money, they really wouldn’t feel good enough about themselves to deserve it, and for others, it’s simply fear or greed driven actions that borderline on the same type of behavior that’s seen in compulsive gamblers. I know it sounds like I’m going all “therapeutic” on you here, but in many ways it is these things that prevent people from seeing any success in stock trading (or in any other kind of trading, for that matter), not so much whether or not they’re using the right technical indicator.

One thing is for sure: Once you have stepped into the arena of penny stock trading, you will need to know a little bit about technical analysis in order to trade with a decent level of success. Knowing the terminology of the markets is a must as well. Some people are trying to trade, and they don’t even know what “bid” and “ask” are. For those who may still not know, don’t feel bad; it took me a long time to catch on to what these things meant, and to this day there are still many aspects of the markets that are a little too financially sophisticated for me to fully grasp, but that should be good news to you, because if I can be at this level of limited knowledge and still make profits from trading penny stocks, you can too. Anyway, back to the “bid” and “ask”. The “bid” is basically the prevailing price that buyers are willing to buy the stock for. The “ask” is the prevailing price that sellers are willing to sell the stock for. In other words, if a stock has a bid of $0.0001 a share, that means that there are no buyers that are willing to buy the stock for any price higher than $0.0001 per share. If the “ask” for that same stock is $0.0003 a share, that simply means that there are no sellers willing to let the stock go for any price lower than $0.0003 per share. The difference between the “bid” and the “ask” is called the “spread”, and this is where market makers make their money. Of course, as I’ve said before, this is the very thing that causes many people to get slaughtered as far as positioning themselves for profit is concerned, because they enter a trade using a market order, and that’s basically a blank check for a market maker. But before I go on a rant about that stuff again, just check out my post about why you shouldn’t buy penny stocks with a market order.

Man, I feel like I was just getting started, but I am going to have to sign off, because I have two small children, and duty calls. In the next few posts (translated: Whenever I get around to it), we will cover a little more in-depth about trading penny stocks using the principles of technical analysis. Until then, I encourage you to check out the archives for more trading topics.