As much as I hate to admit it — true penny stocks are hot.
They’re not my favorite to trade…
I prefer looking for low-float stocks trading around the $2-$7 range that are easy to borrow. That’s where you can see heavily shorted stocks have explosive squeezes.
But as a trader, you can’t ignore what’s hot. You have to follow the opportunities…
That’s why my number one watch yesterday was a true penny stock.
I shared the best way to enter trades in true penny stocks with you on Tuesday — use the oracle signal.
But how can you manage risk when trading these sketchy stocks?
Phunware, Inc. (NASDAQ: PHUN) had a nasty drop after hours in just a few minutes on Tuesday.
You don’t want to get caught in that kind of devastating move.
So read on for my three tips to help you with risk management in true penny stocks.
And don’t miss my representation TONIGHT! Reserve your spot now before it’s too late.
3 Risk Management Tips For True Penny Stocks
Yesterday, Airspan Networks Holdings Inc. (NASDAQ: MIMO) reminded me of Phunware, Inc. (NASDAQ: PHUN) from the day before.
It was trading high volume in premarket, the company had news, and it’s a true penny stock.
Always Have a Stop
Part of a trading plan’s fundamental principles is having a stop before you even enter a trade.
This is a critical step in risk management, and it’s non-negotiable. Especially for true penny stocks!
Knowing what you’ll do if a trade goes against you is crucial.
Without a predetermined stop loss, you’re setting yourself up for failure.
Even if not having a stop loss is a recipe for wishy-washy decision-making and overstaying that can lead to disastrous outcomes.
So always have a stop, and most importantly — have the discipline to stick to it!
Don’t Hold Overnight
True penny stocks are super sketchy. You’re not dealing with a stable stock like Apple Inc. (NASDAQ: AAPL) that will only move like 1% a day in either direction…
Penny stocks can have wild, volatile moves — up and down.
Plus, holding overnight exposes you to news that can drop when the market is closed.
Look what would’ve happened if you held Phunware, Inc. (NASDAQ: PHUN) overnight on Tuesday…
If you walked away after the close and came back in the morning — you were down 61% from the highs!
That can take you out of the game if you have a small account.
PHUN chart: 2-day, 1-minute candle — courtesy of StocksToTrade.com
Stick to day trades in sketchy stocks and always….
Lock In Profits
Don’t underestimate the power of locking in profits when you have them.
If you set realistic goals, follow your trade plan. If a stock shoots through your goal, don’t let greed take over and overstay your welcome.
You already made more than you anticipated — it’s a win. Be happy.
But also be ready to adapt if a stock starts looking weak. Take off part of your position to lock in gains, or exit completely. You can always get back in if you see it setting up again.
Risk management is also about adjusting to market conditions.
Watch this video to learn more about managing your profits when in a trade.
These three risk management tips — having a stop, day trading, and locking in profits — are essential for trading true penny stocks.
Remember, discipline and planning are your allies in the unpredictable trading world.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade