How to Add $450 to Your Trading Account Every Week

Dear Penny Sleuther,

It doesn’t matter whether you’re an avid day trader, a swing trader, or a novice looking to learn more about microcap stocks…

There’s a good chance that you have made one or more critical trading errors that have cost you money.

Trading mistakes crush hard-earned gains — and they aren’t just a problem for newbies. Today, I’m going to show you three simple steps you can take to bulk up your trading account by $450 a week.

The truth is that even the most seasoned traders occasionally make mistakes, allowing the allure of easy money cloud their better judgment and sucker them in to an ill-advised trade. The examples we’ll look at today are taken from real-world stocks this week.

Even if you’re account is under the day-trading rule (less than $25,000) you have the opportunity to add $450 or more to your gains every single week by following these three tips:

1. Change Your Mental Stops

Every trader and investor knows when he has to sell. It’s when our paper losses grow to the point where we can’t handle it anymore. What I’m recommending is that you drastically change your level of “acceptable losses” by shortening the leash on your trades.

Protecting capital is key — and it’s something you need to do religiously if you want to stay a trader for long. That’s why it’s so important to keep your stops tight…

If the trade doesn’t immediately go your way, whether its a failed breakout or negative market forces, cut it loose. Yes, the stock could eventually rally, but there are always more great trades out there.

You don’t only have to change the stops — you have to stick with your changes. Leave all hope at the door. Wishing for a stock to make back its earlier losses is trouble. You can hope all you want, but the market doesn’t care. Decide on your point of no return, write it down, and stick to it. The market it always right.

Let’s say you bought 200 shares of Dex One Corporation (NYSE: DEXO) on Tuesday at $8.15 (for a total trade of $1630) as a micro-cap stock for a swing play.

With yesterday’s DEXO trade, a respectable stop loss level would have been at $7.95, just below the stock’s near-term support level. Had you actually placed that trade with those tighter stops, you’d be dealing with livable losses of $40. If you held on to shares, hoping instead for a bounce back, you’d be down $210 today. By selling early, at a technical support level, you kept nearly $170 in your account.

2. Don’t Chase Losses

In last Friday’s Sleuth, I told you not to chase overextended stocks. This week, I’m telling you not to chase a bad trade by buying on the way down. Unless you have a fundamental reason for buying more stock in a losing position, don’t do it. Averaging down is a strategy used by value investors, not traders. If you properly follow rule No. 1, you should never be in this position to begin with, but just in case, let’s take a look at what would happen if it did…

Take our DEXO trade from above as an example. Let’s say you were sure that shares should move up, so you chased the stock, buying another 200 shares at $7.75, a seeming support level. If you’d doubled down there as shares slid in yesterday’s market you’d have lost an extra $130.

3. Trade with a Purpose

If you want to throw your money away, go to a casino (at least they give you free drinks). If you want to consistently make money-trading stocks, don’t treat the stock market like game of craps…

If you do your homework, you’ll have big trading days. And booking big money can be exhilarating, so don’t blow your gains on gambles. I see too many traders do this — and complain about it — on a consistent basis. They’ll risk just a small amount on a long-shot play when they’re up big on the week. You should avoid these “lottery ticket” plays at all costs. More often than not, you end up throwing your money away.

Let’s say you had a big week — and made more than $2500 on a few well-researched calls. Friday afternoon comes around, you open your trading account, and you see a lottery ticket play that’s getting a lot of buzz online. You could take $150 worth — “just to see what it will do” — and it wouldn’t ruin your week in the least. But more than likely, you will end up just losing the whole thing.

However, if you shut down your trading and ignore the risky plays — you would end the week without dropping $150 from your hard-earned gains…

Counting the Cash

After reading these three rules, you can see how three small actions can add up to real money. Losing $150 here and there can cripple your trading power. In the scenarios above, three small actions would have saved our trading account $450 or more.

Obviously, these are hypothetical examples — and your mileage may vary — but it’s not difficult to see how these mistakes could have kept significant cash in your account. That’s why I keep these rules at the front of my mind whenever I trade micro-cap stocks (and I make sure that my Bulletin Board Elite readers do the same, resulting in gains like last week’s 100% trade).

Follow these three rules every week and you could watch your gains grow too. All it takes is cutting losers early, not chasing bad money, and eliminating the end-of-the-week gambles.

Sincerely,
Greg Guenthner
Penny Sleuth

December 8, 2010

How to Add $450 to Your Trading Account Every Week was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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