Stock promotion often affords traders an opportunity to make a quick buck on a short-term play. Stock promotion in the micro caps is inherently very short term yet many traders because of EMOTION treat the quick trade like a lifetime investment.
The language in promotional pieces put out by stock promoters and other entities often promise an incredible opportunity to get wealthy on a particular stock. The stock may be trading at .10 but the promo pieces are making a case for a $2 stock. Then they give you all the reasons why.
The problem comes in when novice traders believe the outlandish price targets and other things written into promo pieces. This is especially a problem when a stock performs for a few days or a few weeks instead of one day. Many novice traders begin to drink the “kool aid” and get sucked into buying more and more shares as the stock advances.
How do I know this? It happened to me a fair amount of times. I too have been a bag holder on many occasions. When it comes right down to it, the best lessons are the ones learned firsthand.
Here are a few of the guidelines I use and which have served me well:
- Never marry a stock. What goes up will come down and usually will come down so fast you will not be able to get out. You will join many other bagholders…
- Trade OTCBB and Pink Sheet stocks. I would suggest getting out of at least a good portion of your position in the first day IF IN PROFIT. If you are not in profit, something is wrong and get out of all of it and find another play.
- With the exception of very, very few stocks, it takes trading many stocks over a period of time and being right at least 30% of the time to make a significant amount of money in the micro caps. Trying to get wealthy on one stock will usually have the opposite effect.
- Develop a system for trading and follow the rules. Every time I lost a significant amount of money is because I let emotion take over.
There is nothing wrong with penny stock promos… just remember that the promo is usually only for a day and with only a few exceptions, the stock will play out in one day.
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