DISCLAIMER

I am not a registered investment advisor with the SEC. Nothing in this video, should be taken as legally binding investment advice, in the same way that SEC licensed stockbrokers can advise their clients. I am not “selling” any stocks or OTC penny stocks as a broker in this video. The purpose of this video, is only to offer guidance to those who are interested in educating themselves, about self-directed investing and Biblically Responsible Investing (BRI).

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Suffering produces perseverance; perseverance, character; and character, hope. –Romans 5:3-4

HOW TO CALCULATE A REALLY TIGHT STOP PRICE

Objective: You want to trade $10,000 into a penny stock, but you only want to risk $200 of it. If the price drops to a certain point, then the trading program will automatically sell all your shares and you will only lose 2% of your trading money; but you’ll preserve 98% of your capital for next time around.

When you enter the “Buy” order of the stock, make sure it is a Limit order, not a Market order.

Then start to setup the “Sell” order for the stock. This should be a Stop order….

STEP 1: $200 / $10,000 = .02

STEP 2: .02 x $0.75 (the current penny stock share price) = .015

STEP 3: $0.75 (the current penny stock share price) – .015 = $0.735 (this is the STOP PRICE)

DON’T DAY TRADE WITH PENNY STOCKS?
ONLY HIGH VOLUME S&P 500 STOCKS?

After my conversation with a fourth Schwab broker, he said that a 2 cent sell stop is only part of the equation to preventing a big loss on a 10,000 share trade. The other element is volume. In other words, he says to avoid all penny stocks, and only focus on S&P 500 stocks that have high volume. TSLA isn’t a BRI stock, but as an example, its 1-minute candle volume (whether green or red) is usually around 800k to 2 million shares being exchanged in a single minute. Day trading a high-volume stock like this means that when you buy 10,000 shares, you will most definitely be able to sell 100% of them when the time comes, because there will be enough people within the 1-minute candle to buy the 10,000 shares from you in that moment. This is basically what Bear Bull Traders says: only day trade with S&P 500 type stocks.

Most of the people that I bought NRXP penny stock shares from, sold them to me in 100 share blocks. If there is a moral of the story, it seems that 10,000 shares should only be used on high-volume S&P 500 type stocks. But if you want to buy a low-volume under $1 penny stock, then trade no more than 100 shares. Dr. Rice used to buy blocks of 1,000 shares, but his stock prices were around $5 a share (Getting Rich with Low-Priced Stocks, p. 5).

And don’t buy stock at 9:28 or 9:29 before the open at 9:30am! Wait for a new green 60-minute confirmation candle to pop up first! I’d say its safer to stick with 60-minute candles. 

UNDERSTANDING MY TRADING MISTAKE WITH NRXP

I had a .02 pts trailing stop on a 10,000 share purchase at 90 cents. Then the stop unexpectedly dropped to 82 cents (.08 pts) and finally finished selling off my 10,000 shares in different amounts: many were amounts of 100, some 500, a few 900s. Finally after it all was finished, my total loss was $1,000. The Schwab broker said that the program started my shares sell-off at .02 pts, but didn’t finish it until .08 pts, because there simply wasn’t enough traders available to buy off my shares in time as the price fell. In just one minute’s time, the share volume dropped from 107,046 to 18,025.

After I spoke with four different Schwab brokers, we analyzed what went wrong and how to avoid it again…

1. Put a SELL STOP ORDER at 2 cents below the current price.

2. Make sure that the volume for the 1-minute candles is at a healthy 100,000 shares being traded, but still trade on the basis of the 60-minute candle trend. This means you need to be patient and wait for another green confirmation candle. I didn’t do this. I bought BEFORE 9:30am and didn’t wait for the green candle with high volume to reappear again.

Note: I will not try another trade until I complete reading Toni Turner’s The Beginner’s Guide to Day Trading Online. And at that, I probably won’t trade more than $100 at time; that is, until I can get a predictable and repeatable strategy established.

Peter Leeds says you can buy 10,000 to 12,000 shares of stock, but the price should be around $2 or $3 a share (Penny Stocks for Dummies, p. 73).

F. Philip Rice says yes to 10,000 shares, but he’s looking at stocks anywhere from $3 to $5 a share (Getting Rich with Low-Priced Stocks, pp. 76-77).

UPDATE: After my 5th Schwab broker conversation today, and after they looked into my NRXP trade where I lost $1,000, they said that I had possibly uncovered a computer glitch with the “trailing stop” feature on their StreetSmart Edge platform. Its not activating! They entered in a dispute for me so I could get the $1,000 loss back into my account. Normally people use a Sell Stop order of 2 cents instead of a .02 pts trailing stop like me. TRADE: SELL: ORDER TYPE: STOP. That’s what most traders use.

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UPDATE: 

Bruce McWilliams said that back in the 1980s, long-term penny stock investors, used to buy amounts like 10,000 shares of a 16 cent penny stock, 30,000 shares of a 13 cent penny stock, and at least four occasions of traders who bought 10,000 shares of a 10 cent stock (that is, they only sunk $1,000 into a 10 cent stock to get 10,000 shares of it). Like Leeds’ strategy, all of these turned a profit within one year of holding. None of these were scalping situations (Penny Stocks, pp. 183, 184, 193). 

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UPDATE: 6/6/23

Never use a trailing stop when scalping for a penny stock day trade. I bought 10,000 shares of a penny stock, before the open at 9:30am (before a green confirmation candle appeared,) which was my first mistake. My second mistake was that I used a poor stop-loss tool: the so-called trailing stop bracket. It didn’t do anything. And I had to manually sell my shares at a $1,000 loss. The Schwab brokers admitted that the trailing stop didn’t trigger at all; but all they could do was refund me a measly $382 back. The moral of the story: always use a SELL: ORDER TYPE: STOP: STOP PRICE (2 cents under) when scalping a penny stock (see Toni Turner, A Beginner’s Guide to Day Trading Online, pp. 32, 34, 38).