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Penny Stocks Daily Performance

Do not underestimate the power of Limit and Stop Loss Orders.

There are generally two types of stop orders, one that will guarantee the execution but not the price, and one that will guarantee the price but not the execution with the former being a safer alternative to the later.   Limit orders allow you to guarantee the price, but not the execution when buying or selling and should always be used with penny stocks.  We commonly like to keep our limit orders to our self until the last minute.  A regular stop loss or limit order can be seen by all Market Makers, and in effect determines what those market makers are willing to pay or accept for shares.  By showing them your cards, so to speak, you are essentially hurting your own cause, and the very act of sending a stop loss order makes it more likely that said order will be filled.  There is plenty of software, or other order types provided by brokers and independent designers, but perhaps the best way to stop a loss is to simply have an eye on the screen and a finger on the trigger, and fire when your own preset conditions are met, no matter what.

       We mentioned that we like to keep our stop losses on the loose
side, as much as 50% below our entry price, and another important
consideration has to do with the round number syndrome.  Time and
time again, a better risk reward ratio can be achieved by avoiding having
preset stop loss prices that are equal to a very obvious round number,
such as $.50, $.25, and $.10 to name a few.  Instead, consider lowering
these conditions to a less palpable digit like $.44, $.22 and $.08 in
keeping with the previous example.  The small amount of added risk is
more than outweighed by the results of history.  The reality is that stocks
rarely find support or resistance at round numbers, and in fact, typically
penetrate just below or above these magical milestones.  Practicing this
strategy will not only jump start your trading by allowing for a better
winning percentage, but will also help lower your commission costs.  
Also remember when choosing a broker for Penny Stocks, which you can
find out a lot more about in our Choosing a Broker section, you will
always want to use a limit order, so be sure to check for any extra costs
involved.

In addition to stop loss and limit orders, your broker may be, or will soon be in the process of offering you several new types of orders, some will work well with stocks under $1.00, others will not.

The most interesting, and perhaps most useful exotic order type available is the trailing stop.  This allows you to set a certain price margin whereby as the stock hopefully moves up, so does your trailing stop loss.  Stock prices go up and down, but your trailing stop loss will only move up, never down, and as soon as the stock price breaches your stop, you are out.  Another order type is called a bracketed order, and is somewhat simpler in design.  A bracketed order allows you to set two price conditions, one where you will buy, and one where you will sell.  For stocks priced under $.10, any type of stop order will likely be unusable.  Most if not all brokers have a minimum requirement with respect to the distance in which a stop order must be entered below the current bid price.  Unfortunately, this minimum is measured in cents rather than percentage points.  By and large this minimum ranges from $.05 to $.10 making them inadequate for extremely low priced stocks.  We make the best of this situation in two ways, first, by always diversifying among several different price ranges to minimize the portfolios exposure to lack of a definitive stop loss, and second by incorporating a happy medium of rigid electronic trading with good old fashioned manual trading.