Risk is an inherent part of day trading. It’s only with risk that we can reap the many rewards that can come from trading penny stocks, but the key is learning to minimize and control those risks.
And, more importantly, there are certain risks that you should NEVER take in your trading career. They’re unnecessary and they can not only wreck your account, but also your confidence too! These are six risks you shouldn’t take as a penny stock trader.
1. Lack of knowledge base. How’s your trading literacy? If you can’t say “good” with confidence, then you’re probably subjecting yourself to unnecessary risk as a trader. You probably know on some level that to truly be successful as a trader and to become my next millionaire trading challenge student, you need to understand how trading works. However, many traders, particularly ones who enjoy early success, can fool themselves into believing that they have the touch and don’t need to waste their time studying.
This couldn’t be further from the truth, and it’s one of the risks you shouldn’t take. Sooner or later, you will lose money, because without a proper knowledge foundation you’re basically just gambling. The Tim Sykes Millionaire Challenge was created as a way for traders to learn the necessary base of knowledge and skills needed to trade. By understanding the market and having a strong knowledge base, you reduce a lot of unnecessary risk.
2. Unrealistic goals. Let me tell you one thing straight up: I don’t want to squash your dreams. If your dream is to open an exotic ice hotel in Scandinavia, I fully support that goal. However, to expect it to happen overnight is totally unrealistic.
Do have big, lofty dreams. But even as your head is in the clouds, be sure to keep your feet on the ground. Break up your big “someday” goals into tiny, more manageable ones. On a regular basis, this will keep you motivated as you continue to be rewarded by meeting your goals, rather than having dreams that can seem very far away. Being unrealistic is one of the risks you shouldn’t take as a trader, because it can rob you of your drive and motivation.
While several of my top millionaire trading challenge students have made six-figures and seven-figures within a few years, NONE of them have made that much much money all inside a few days, weeks or even months at the start…this is a marathon, NOT a sprint!
3. Procrastination. Sometimes, doing nothing is the biggest risk of all. Seriously: procrastination is like the devil for traders. Here are some of the many ways it can be harmful:
- If you delay on joining the Tim Sykes Million Challenge team, then you might never make the change you crave in your life.
- If you put off your studies, the trading day will come and go and you won’t have anything to show for it.
- If you procrastinate on doing research, you might make risky investments and lose money that could have been avoided.
Procrastination is one of the key risks you shouldn’t take as a trader. You may have to work very hard to eradicate this bad habit, but it’s worth it.
4. Not doing research. I’m sure my students get bored of me talking about how important it is to do research. Well, at the risk of being boring, I will say it again: you need to do your research as a penny stock trader…this new trading software helps cut down the time DRAMATICALLY so use it!
Never forget that trading penny stocks comes with a fairly high level of inherent risk. Why anyone would invest their hard earned cash without doing a little googling about the companies in question beforehand simply boggles my mind. Many new traders are content to take the word of others, but this is a mistake. For one thing, you can’t be sure if it’s a pump and dump; for another, you can really only make the right decision if you have the proper information at hand.
Every day, you should set aside time to do research on your potential plays. If you see a rapidly moving stock, take a few minutes to research them a little bit. Sometimes, you’ll learn something that will tell you it’s not a great time to buy or short. But sometimes, you’ll find news that can make you certain of your investment. Either way, if you’re spending your own money on something, it’s worth doing a little research.
5. No diversification. Undoubtedly you’ve heard the adage that you shouldn’t put all your eggs in one basket. The adage is painfully obvious: you don’t want to put all of your eggs in one basket, because if you drop it, you’ll break them all. And yet many short-sighted traders are more than happy to sink all of their funds into one enterprise. It might be great if things work out, but if you lose it, then you’re totally sunk.
When it comes to trading and investing, diversification is extremely important. You don’t want to sink all of your funds into one trade, and you don’t want to only make one type of investment forever. The market will change, and you have to, as well.
Once again, we go back to learning here. To really be able to diversify, you need to learn about different styles of trading and how to execute them. This will help make you more adaptable and diverse in your career. By joining my Millionaire Challenge, you’ll learn different forms of penny stock investment and gain a repertoire of different ways to diversify.
6. Forcing trades. At first, you may have trouble trusting your instincts as a trader. After all, when you’re still new to it, you probably don’t know enough to identify your gut instincts. However, as you progress in trading, you’ll start to develop a sixth sense for when you’re forcing a trade and when it doesn’t feel right.
Often, the more you try to make a trade happen in spite of resistance, the more you stand to lose. Don’t dismiss the power of your instincts. If you have a bad feeling about a trade, it doesn’t necessarily mean the trade is bad. But it may mean that you need to do more research or hit the books before you’ll feel comfortable making such an investment. Listen to these instincts: they will guide you to become a stronger trader.
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