this is the single most important tradingtactic of all! if you do this one simple thing, you willbe a great investor. this easy stock market trading technique ismore important than just about all of the others strategies out there. it's going to protect you from the downsiderisks, with penny stocks and large stocks
apple 1 share price, alike, while keeping you locked in for anypotential gains. check it out! i want to talk to you about stop loss orders. these are absolutely imperative!
first, on behalf of my entire team, i wantedto express our gratitude. you guys are really amazing, and we will keepbringing you these videos to help you profit from penny stocks. please share the videos, like them, subscribeto the channel - whatever you want, you guys are grown-ups, you know what to do. now, stop losses are the number one tradingtactic, and will protect you from the downside in volatile stocks, while keeping your gainslocked in. you should be using stop loss orders always,whether you are trading ibm or apple or mcdonald's, and especially when it comes to penny stocks.
if you aren't already, you can start usingthem today! here is how it works: if you buy shares, youcan set a stop loss just below the price you paid. maybe 5, 10, or even 15 percent below thepurchase price. then, if the shares fall lower to your stoploss trigger price at any point, for any reason, you immediately sell the stock. so, let's say you buy ibm at $173. you might set your stop loss trigger priceat $169, then if the shares head lower to that point, you immediately sell.
that limits your total worst-case downsiderisk to about 3%. however, if the shares acted as you hopedand started moving higher, the gains will often be significant. usually, your online discount broker willallow you to set automatic stop loss orders, so that you don't even have to be activelywatching the shares. you might buy a stock, set your stop losstrigger price, and theoretically wouldn't even need to keep an eye on the investment. in some cases, with some brokers, they willnot allow you to use stop loss orders. this is especially true with penny stocks.
in such cases, what i personally do is touse what i call a 'mental stop loss.' perhaps i buy a penny stock at $1.08, theni choose a 'mental stop loss' trigger price. let's use 98 cents in this example. if the shares rise, i profit. if they fall, i sell and take the tiny loss. even if your broker doesn't allow you to setup automatic stop loss orders, you can set up an alert through them, or free online portalslike yahoo finance, or google, which gives you an e-mail or text if and when the sharestrade at the price you specified. then, it is just a matter of following throughon your mental stop loss commitment.
you decided you would sell if the shares fellto a certain price. then, the alert tells you that the stock hasfallen to that point, so now it's all up to you. i will be the first to admit that followingthrough on a mental stop loss is much easier said than done. typically, people will try to talk themselvesout of the commitment - they might say things like, "oh, it's just a bad overall day onthe markets," or maybe, "this stock will rebound because of this or that..." it is also hard to "lock in" a loss, or admitan investment mistake.
people tend to hang in there, hoping the shareswill rebound. more often than not, the shares drop evenfurther, and sometimes significantly. taking the early 4 or 5% loss when you shouldhave, is usually much more profitable than not following through on your original stoploss decision. you could take a lot of 5% losses before itis going to matter. besides, it is not all declines and downside- you are going to find winning stocks too. as i show you near the end of this video,stop losses can really lock in your profits. when your shares keep moving higher, that'swhen stop loss orders get really fun and profitable. is there a downside to stop loss orders?
yes, there is, and it is called "getting stoppedout." picture this - you set your trigger price6% below what you paid for the shares... then the stock dips 7%, triggers your stop loss,and you sell. before the digital ink is even dry on yoursell confirmation, the shares bounce back up, perhaps even to prices higher than youhad originally paid. this happens. it is all part of the deal, but a small priceto pay in exchange for limiting your risks, and consistently benefiting from the greatside of stop losses. besides, there are things you can do to minimizethe number of times you get stopped out.
if you find you are getting stopped out alot, you may be setting your trigger price too close to your purchase price. look at things like trading volume - the higherthe trading volume of the stock, the closer (or "tighter") you can usually set your stoploss, because the shares aren't going to be jumping around quite so much. also consider that shares have a certain degreeof natural volatility - if you buy at $1.00, then use a stop loss price at 99 cents, youwill almost certainly get stopped out. we also show you in another video the impactof support levels, which serve as great price points for stop loss limits.
picture that same $1 penny stock from ourexample - if it has significant support at $1, then using a 99 cent trigger makes moresense. now, when talking about penny stocks specifically,since they are more thinly traded, and many of the investors in them are less-experienced,they are more commonly traded at threshold prices - this means 50 cents, $2.00, $1.50... you won't see a ton of penny stock tradersall gathering around the $1.32 or $0.71 price points. they often will be trading at round numberprices - these are more significant in the penny stock world, and they should be consideredwhen deciding on the best trigger prices.
now, there is also a very good side to gettingstopped out. picture this scenario, and it happens a lot: let's say for example that you buy at $2.23,and you get stopped out at $2.11. then the shares keep sliding lower, all theway down to 48 cents... when they reach a bottom, and show signs orreversing to move higher, you could then buy back in for about 75% lower than your initialpurchase price. failing to use a stop loss limit is like goingdown with a sinking ship, while using one can be more like waiting until the fix theleak, then getting back onboard. as we grow, and because you asked for them,one of our new peterleeds.com features is
that we provide our opinions of optimum stoploss prices, along with the buy and sell ranges for the short and long term. now, i promised to discuss the really greatside of stop loss orders. specifically, this involves trailing stops,and is a great way to lock in profits when the shares are increasing. picture this: you buy shares at $3.12 - you set a stop lossat $2.95. then the stock climbs towards $4. you then adjust your stop loss trigger pricehigher.
a month later, the shares are at $4.85, soyou decide to increase your trigger price again. as the shares keep rising, you can keep increasingyour loss limit trigger price. at any point, if the shares reverse lower,your stop loss order will ensure you keep most of your profits up to that point. on the other hand, if the shares continueto soar, you can keep increasing your guaranteed profits by moving your trigger price, continuallytrailing the rising shares.
