DUMB penny stock question. (sorry)

[popo232356]

This is probably going to sell like a dumb question but i just cant wrap my head around it. say i buy a penny stock at one of its lowest points but then it keeps dropping. But in like the next week it is bound to go up judging by the weekly charts why don't most people just stay in that trade till it goes back up? Is there like a time limit for how long you can hold a trade?

 

[tomorton]

There's a number of good reasons to exit a losing trade. Whether any particular one is good enough as a reason to exit a particular trade on a particular day is up to the individual.

e.g. -
1) TA now suggests price more likely to fall or stay low than to rise
2) capital is now better put to work in another share which is likely to go up sooner or further
3) current unrealised loss is as much as the trader can stand
4) price has fallen by a standard amount or % which the trader has pre-set to keep risk:reward ratio healthy

I've put these in my order of preference. Actually, I wouldn't use 4) at all. But I always use a stop - the market does unexpected things sometimes and you never know when.

 

[Lands_end]

Your best bet is to put all of your money into penny stocks. When you lose it all then you can just commit suicide like most people do whenever they try to out think the marketplace but get it wrong.

 

[timsk]

This is probably going to sell like a dumb question but i just cant wrap my head around it. say i buy a penny stock at one of its lowest points but then it keeps dropping. But in like the next week it is bound to go up judging by the weekly charts why don't most people just stay in that trade till it goes back up? Is there like a time limit for how long you can hold a trade?

Hi popo,
Welcome to T2W,

It's not a dumb question at all: it's absolutely fundamental to all traders. If you know for certain that the price will pick up and convert your losing position into one of profit - then sticking with the trade is the obvious option. The problem is that there are precious few certainties in trading. In fact, one commentator observed that the reality of trading is loads of hard work, levels of frustration you would not believe and living with uncertainty, knowing that is the only certainty there is. So, you can never be sure that price will do as it's done in the past. Historical price charts are just that - they are not predictors of what price will do in the future.

Now, all of the above must be tempered by the size of your account and the amount of money you put at risk. If you have £100k and the amount you have invested in the penny stock is such that if it goes belly up you only lose £1k, then you might conclude that the 1% risk to your capital is acceptable and that it's worth hanging on to see if the price eventually turns back up - just as it's done in the past. However, if you go all in, how are you going to feel when the price is half what you paid and you've effectively lost £50k? Are you going to remain calm and confident that it will do a U-turn anytime soon? Or will you panic and bail out? And if you lose the lot, how will you feel then? You don't want end up in the scenario outlined by Lands_end's and taking yourself off to a darkened room with a large bottle of Jack Daniels and some sleeping pills!

Tim.

 

[tomorton]

Your best bet is to put all of your money into penny stocks. When you lose it all then you can just commit suicide like most people do whenever they try to out think the marketplace but get it wrong.

A good candidate for the crassest and most pompous post on the site.

 

[3wnl]

"why don't most people just stay in that trade till it goes back up? "
Because they want to make money fast, like Timothy S, who made a fortune buying/selling penny stocks in a short period of time.
"Is there like a time limit for how long you can hold a trade?"
No, as long as you buy it with cash. You need a margin account to short stocks and you're required to maintain certain % of cash when you buy/sell penny stocks on margin. I don't think some brokers would let you short pink sheet (penny) stocks, it's not even profitable for them.

If you buy something and it keeps dropping in price, it will likely to consolidate for a while, at least 3 months, before going back up again. But it's quite unlikely the price will be the same as to where it started dropping. Something that is worth a penny won't be worth a million in the future, this is how finance works today.

 

[Atilla]

LLOY a penny share...