The one mechanical rule that will keep you alive: The Stop Loss. (Post 10/45)

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Welcome to post #10.

At the end of the previous post, I told you that no trade goes through, even if there's no problem with the chart, no problem with volume, and no problem with the retest.

And they will. A lot.

It is not important to be right 100% of the time when trading penny stocks. The honest best traders worldwide are right 50% – 60% of the time, and the rest of the time they're not. The only thing that separates the professional from the newbie who loses his account in a month is one thing.

How they deal with failure.

Beginners make trades with their ego. Then they purchase a stock and when the price begins to fall, they become paralyzed. They watch their screen and see "red" and say to themselves, "It's okay, it's a dip, it will come back, I will just hold it up until it gets back to breakeven.

Hope is not a player in the penny stock arena. It's a sentence of death.

The latter are garbage companies. When a pump is totally dead, it is not "bouncing back. It's going to be (literally) zero and you will be left with the bill for years.

The Stop Loss is what you need to survive.

A stop loss is what it implies. It's a hard and fast rule (and real order that you can enter into your broker app) to sell your shares on the spot as soon as you lose a certain amount of money.

No emotions. No hoping. No hesitating.

Let's return to our previous example of 'Retest' from post #9.

You've seen a stock on the breakout and it bounced back, so you bought the bounce, off the $2.00 level.

The first thing you're doing, even before you breathe, is where to place your stop loss.

You know that the "floor" is at $2.00, so if they price it lower, say $1.90, that floor has just been broken. The thesis of the trade is completely done. So, your stop loss is placed there at $1.90.

If the trade works? Awesome. The stock rebounds to $3.00 and you make a huge profit.

If the trade fails? The stock goes down, when it reaches $1.90 you get out of the trade and take a negligible, micro loss on the paper.

You safeguard your capital to be able to get up and trade once again tomorrow.

Don't think of taking a slight loss as a bad trader. This implies that you're a disciplined one.

Therefore, you now know how to interpret the pattern, you know where to purchase and you know where to cut your losses. The one big piece that still needs to be put together, though.

What is the real amount of money that you should invest in that trade?

If you invest all of your money in a single optimum setup, you are still a gambler. We'll be discussing Position Sizing in post #11, and why "all in" is for amateurs.