Penny Stock Runners

Well, since EFOI is languishing, support at $0.98 has been broken, and I’m sitting with losses right now, I thought it would be a good idea to focus on something positive and talk about penny stock runners. There have been so many good examples of penny stock runners recently, it was hard for me to narrow down & pick just a couple of instances that really stood out to me. One thing is for sure, if you have your own money invested in a penny stock that looks like it might be a runner, you better have your emotions in check, especially if it actually starts moving your way. But before I get ahead of myself, for anyone that may not be familiar with what a “penny stock runner” is, the name pretty much states what it’s all about…it’s the financial equivalent of the bulls of Pomplona (I think that’s how you spell it)—it’s a runaway stock in an overpowering move to the upside. The exciting news for you and me is that this type of thing happens literally all the time in penny stock trading. It used to be, in my earlier days of trading penny stocks, that I would get all upset if I missed a big move on a particular penny stock. Now…shoot, as Slick Rick once said, “This type of **** happens every day.” I may have mentioned this before, but it bears repeating—the opportunity of a lifetime happens about once a week in the penny stock markets. Several opportunities exist all around you when you really dive into the vast numbers of stocks that are available to trade on the NASDAQ, AMEX, and OTCBB markets. Again, though, spotting a potential penny stock runner, and even being correct on your prediction, does not guarantee that you will personally profit from the stock’s price move. You have to actually execute the trade properly in order to see any real improvement in your brokerage account balance.

Which leads me to a story that I want to tell…a true story, actually…something that just recently happened to me in the penny stock markets. Something that I’m not proud of, but that I learned a lot from. As some of you who have read my past posts know, I had highlighted a few stocks at the early part of the year, and every single one of them tanked (well, except for EAG, which is still accumulating & hasn’t moved yet). Normally I’m not that horrible in my prognostications, so this situation really left me doubting. Now don’t get me wrong, there were a couple of stocks where I mentioned that they may not take off, and may even go sour, so I won’t say that I missed it by a country mile, but it was the first time in a LONG time where my interpretation of the price charts left me second-guessing. So, I was in a sort of a “funk” and was sitting on the sidelines, just sifting through my TD Ameritrade penny stock screener, when all of a sudden I saw this awesome price chart for Cano Petroleum (NASDAQ: CFW). It was under some serious accumulation—which is all I really ever look for, the sideways channel pattern—and it had dipped below the basic trading range for a slight bit, right after it had been accumulating in a tight range for a decent amount of time. This really set off a signal in my mind that I need to get into this one, because it had all the makings of a shakeout. So, even though I didn’t have time to post about it due to a lot of other stuff going on in my life, I entered a position at $0.3374, which later proved to be the almost absolute doggone bottom. I entered my position on February 22, 2011. So, I’m sitting pretty for only a few days, and sure enough, in only 5 trading days the run up starts, faster than I even actually expected it to. And let me tell you, I had confidence that I would at least double my money, because I thought for sure the stock had at least a $0.66 target in it. Man, was I wrong. It moved enough to almost doggone TRIPLE my money. CTW ended up making a spike up to $0.849, on an insane amount of volume. This, my friends, is a true-to-life penny stock runner if you’ve never seen one.

So what’s wrong with this picture? Here’s what—I got out WAAAAYYY too soon, far before I tripled (or even doubled) my money. For some reason, I got spooked, and I don’t quite fully know why, although I do have a decent theory on it. I exited the trade at $0.4268, which works out to roughly a 28% profit—a respectable profit by most standards, but FAR below this price move’s potential. Normally I am of the mindset to “cut your losses and let your winners run”, so my big question was “Why didn’t I let this winner run???” And of course, after I exited my position and then saw CFW go through the stratosphere, I had that famous “sour pit in the stomach” feeling. This puzzled me so much that I talked to my wife about it, and I did some soul-searching too. Here’s what I came up with: It all boils down to Trading Psychology 101. I was on a bad run—or as they say in poker, a “bad beat”—with my trading, and for whatever reason, I felt really strongly that I had to be “right” about something again. So, I exited the trade prematurely when I knew I was in profit just so I could prove that I was “right”, or to have that feeling of affirmation again. I know this seems cheesy, but it’s an absolutely real thing. Unfortunately, I let my need to feel like “I know what I’m doing again” override the actual price action in the markets, which left me with an inadequate profit, especially in light of what it did a couple of days after I exited my position. Folks, don’t ever do this crap. Learn from my mistakes. I have actually done this more than one time in my trading career, and it was almost always after a series of losing trades. It’s totally an ego thing, and I can’t say it strongly enough—ego has NO place in your trading. If you’re right, be glad that you were, but don’t approach a trade with a need to feel confirmed, or a need for the market to “prove” you right. You should never use trading to stroke your ego or make you feel like a winner. The markets don’t care one rat’s behind about your feelings or your ego. They will chew you up and spit you out if you don’t remain faithful to a pre-established trading plan. I departed from my plan on the CFW trade, but rest assured, I’m going to learn my lesson and be better for the next time I spot one of those penny stock runners.