There are moments to be opportunistic and aggressive in the market. And then there are times to be cautious and risk averse.
It’s all part of the ebb and flow of trading.
However, as hard as we try to keep our emotions in check—they will eventually make its way to the surface.
We have two choices:
- Let them overwhelm us and make irrational decisions
- Acknowledge that they are there and make choices based on the trading plan
It’s human nature to feel something when you have money on the line… so don’t think you can eliminate your emotions or “trade like a machine” … that’s hogwash.
However, there are certain steps you can take to reduce the role your emotions have on trading. It can be as simple as how you execute your trades.
For example, everyone from time to time gets FOMO… the fear of missing out.
Penny stocks can move fast, and if you aren’t quick to move with them, then prices can get away from you.
The savvy and experienced trader will not chase and simply wait for the next opportunity. While the less experienced trader may decide to pay up to ensure they get shares, regardless of the price.
More often than not… you’ll get burned if you chase stocks.
One way I keep myself away from doing it, is by placing limit orders. It’s a special order type that you can do on any brokerage platform and there are so many reasons why you should be using it—as I explain in detail in my latest post.
Limit orders give me more control over my trading plan…
And by doing so, allow me to better control my risk and make more money.
Why wouldn’t I use them?
What is a Limit Order
You know what a market order is… an order that executes your buy or sell transaction immediately regardless of price.
A limit order on the other hand gets it name because it lets you set a limit on the price you are willing to buy or sell the stock. Using a limit order, you are guaranteed to only be filled at your limit price or better…
However you are not guaranteed to be filled… for example, if the stock doesn’t trade at your price…
Why I use a Buy Limit Order in Penny Stocks
Just because I like a particular trade setup and plan to get in, doesn’t mean that I am willing to pay the current market price. Or even if I am, I am most likely not willing to pay much more than that price…
A buy limit order lets me set the price I am willing to buy the stock at and guarantees me to get that price or better or won’t get me in…
For example, a buy limit order could be placed at $0.60 when a stock is trading at $0.60. If there is enough supply to fill my order at that price, I will get in the trade…
However if the price moves up, I will not be filled unless it comes back down with enough supply to fill me…
So why is this important to me?
With penny stocks each cent can make a big difference in my return. Think about capturing 1 cent on a 10 cent stock… that’s 10%…
So I want to make sure I am getting the most advantageous price and I definitely don’t want to push the price higher with my order…
When I trade penny stocks, every cent matters. And that is why I use limit orders the majority of the time.
Disadvantages of Buy Limit Orders- Well, Not Exactly
A limit order does not guarantee execution. Execution only occurs when the stock’s price trades to the limit price. On top of which the stock can be trading at your limit order price and still not get filled because it will be in line with all the other orders there.
Therefore, the price will often need to completely clear the buy limit order price level in order for the buy limit order to fill.
The earlier the order is put in the earlier in the queue the order will be at that price, and the greater the chance the order will have of being filled if the asset trades at the buy limit price.
Buy limit orders can also result in a missed opportunity if you miss an execution and the stock price takes off…
Here’s why I don’t consider this a negative…
As mentioned… every cent matters to me in my trades… so if I miss a trade because I didn’t get filled, guess what? I don’t care because I am containing my risk.
There are so many great trade setups that come my way that worrying about missing one over a limit price is futile.
If I didn’t use the limit and was getting in 1 cent higher or more on all my trades, just to catch one or two that left me behind… I would actually be making less money overall by paying up on so many of my other great setups.
So yes limit orders play an integral part of my trading plan, and missing a trade is not a huge disadvantage in a long term game…
HOW I use them in my trading
A limit order has five main components:
For example, if I wanted to buy 5000 shares of CLSI, and the maximum I wanted to pay per share was $0.073, using a limit buy order, I would open my order screen and enter as follows:
Transaction type — BUY
Number of shares — 5000
Stock symbol — CLSI
Order type — Limit
Price — .073
With this order, I will only get in the trade if I can be filled at .073 or less
Here is a trade alert I sent out on Oct 7:
And here is the chart:
Using my custom end of day scan, I was alerted to a setup I love in CLSI…
I didn’t want to pay too much as 1 cent can be significant in a 7 cent stock… so using limit orders, I was able to secure a really good price…
And look what happened the next day… that’s a Supernova Boost trade you could have been in too.
I have specific setups that tell me where I want to buy a stock. So when I enter my trades, I use the limit order to make sure I am getting in at a price that will make me money…
And when I get out I will do the same… I enter a limit, sometimes scaling out over a range as it pops up to my profit target range.
With my limit orders out there, all I have to do is sit and watch the money roll in as the stock spikes into my sell orders.
If you’d like to see what this all looks like, then check out this video, a recording from a live training session. You’ll get to see me do my thing… when it matters the most—during trading hours.
I’m convinced you’ll know right away if trading penny stocks are for you or not. Check it out below.