Rating: 10.0/10.0.Don't let a winner become a loser: Scaling Out. (Post 12/45)

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Welcome to post #12.

So… you did a great job. You spotted the break out, purchased the retest, and had a strong stop loss. And this time, it did! The stock is in a frenzy. You are ahead 40% and you feel like you're a genius!

Now what?

This is where the novice gets all excited and totally messes it up.

Beginners see the up 40% in an hour and conclude that it will reach 200% by tomorrow.Beginners see the 40% increase in an hour and assume it will be 200% by tomorrow. So they just sit there. Looking at the screen. Possessing all of them, wanting to make a quick fortune.

After that, the pump gets switched off. The promoters begin to dump. The stock plummets down violently and then, 20 minutes later, all that 40% is history. Their panic sell at 20% loss.

They allowed a big winner to become a loser due to a lack of the ability to eliminate money.

A strategy employed by professional traders to circumvent this is called Scaling Out.

The simple answer is that you don't sell off your entire position at once. Sells in chunks on the ascent.

Let's say you bought 1,000 shares at $2.00. The stock shoots up to $2.50. You checked your chart and it turns out that $2.50 is the next big Resistance level.

Rather than holding it and wishing that it will just break that ceiling, you immediately sell half of your position. You sell 500 shares for $2.50.

Boom. You've secured some cold hard cash! That money is in your account and can't be taken back.

But what about the other 500 shares? You let them ride.

And that's the best thing about scaling out. You already made a profit on the first half so you go back to your original Stop Loss (which you were below at $1.90 to protect you) and you move it up to $2.00 (your actual break even price).

In the trading business, this is known as a "Free Ride".

Consider the mathematics of this situation. Should the stock suddenly plunge back to $2.00, your fresh stop loss will get rid of your remaining stock for no loss at all. But you ALREADY made money in the first half! You have just one day!You don't have a red day on this trade anymore it is literally!

So, what if the stock goes past the top and continues all the way up to $4.00? You still have ½ of your shares riding the wave.

Bad charts will be swallowed up by greed. Harvest when harvest is ripe.

In post #13 we will be discussing the worst time of day to trade penny stocks. 30 minutes of the first session of the market. We refer to it as The Wild West.