Can You Lose Money Trading Penny Stocks?

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The Downside of Trading Penny Stocks?

Trading penny stocks can make you a lot of money in a short amount of time. However, no matter how good you are at penny stock trading there will come a time where you lose money.

And how you deal with losing money in the penny stock market in the short term will effect how much money you’ll be able to make in the long term.

In this article you will learn how to deal with penny stock losses the right way and not give into to fear or greed.

What to do when you’re wrong?

An expert at anything always has a plan for when things go wrong & great penny stock traders are no different. Before buying a penny stock you should clearly decide how much you’ll willing to lose on the trade & always have an exit plan.

A good rule of thumb is to lose no more then 25% on a given penny stock trade. This allows you a lot of room to hold on to your shares, while also making sure that a few consecutive bad trades won’t wipe out your trading account.

Note: there is no hard fast rule when it comes to how much you’ll willing to lose on a trade. The most important thing to do is to pick an acceptable amount depending on your appetite for risk and to stay consistent.

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Averaging down to deal with losses?

One common technique for dealing with losses is called “Averaging Down”. Averaging down means buying more shares of a particular stock on the event that the stock goes below your original purchase price.

An example would be originally buying 100 shares of ABCD at $1.00 per share, and buying another 100 shares of ABCD at .50 a share because it went below your original entry point.

Cutting your losses?

The best way to deal with a penny stock when it goes completely against you is by simply cutting your losses & cutting them early. You can do this automatically by setting up a conditional order called a “stop-loss”.

A stop-loss is designed to literally stop your account from taking further losses by allowing you to set a minimum acceptable price at which the stock must always be greater than. If the stock falls below this price the stop-loss will trigger & automatically sell your shares at the current market bid.

A stop-loss is great at protecting your trading account from critical losses, and making sure fear and greed don’t persuade you to stay too long in a losing trade.

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Closing Words

At Fast Moving Stock we love to focus on ways to make more money trading penny stocks. However losses do happen and it’s important to make sure that you know how to deal with them accordingly.

For getting more guidance regarding penny stocks, subscribe to our free penny stock newsletter.

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