Where to Set Stops?

[michael23]

Hi Dr Pennystock,

I've been reading your website for a few weeks and have been very impressed by your information - thank you very much!

I was hoping you could explain a little about how you set your stops. I've tried following your trades and have given myself quite generous stops (sometimes more than 30%, to wherever I think is a logical support level). However, I often get stopped out while you remain in the position and go on to make money.

It seems sometimes like you don't even use stops at all since you stay in even when a stock drops quite a bit. Is that the case and, if so, isn't that extremely risky?

Thanks very much for any help you can give me.

Have a great day,

Michael

[Dr PennyStock]

Hi Michael, welcome to the forum.

You are right when you say "It seems sometimes like you don't even use stops at all since you stay in even when a stock drops quite a bit.", my stops are psychological, it all depends of the potential of each stock, for example, I can sell a stock if it drops just 10%, if I think that the stock lost potential to run, even if I see that it will not fall, just trade sideways, and, this was the case of WAVE, for example, and, I can hold a stock like HAYZ, that I bought at .01125 and yesterday touched .0061, about 40% below my buy price, because I believe that it will run to .026, so my stop is my confidence level in a stock.

"Is that the case and, if so, isn't that extremely risky?"

No, it isn't, because I know how volatile a penny stock can be, I don't know what is your knowledge level about penny stocks, but, I trade penny stocks since 1997, and, during the technological bulb, until 2002, I saw many times penny stocks run 500% in a matter of 5 - 10 minutes, good old times, so when I believe that a penny stock will run and I will make money, I hold even if sometimes it is 50%  below my entry price.

If you still have doubts, just ask.

Have a nice day.

[michael23]

Great, thanks very much for your response - I understand!

However, what advice would you give me since I can't be at a computer all day when the market is open? Because of my schedule, I'm usually only able to place orders when the market is closed.

Thus, if I'm following one of your recommendations and you write that you bought a stock, then, once I read it, I'll put in an order to buy on the open of the next day. Likewise, if you post that you sold, I'll put in an order to sell on the next open.

Since I'm not at the computer throughout the day, I'm afraid of owning a volatile stock without any kind of stop, just in case it happens to go down say 80% in one day. I tend to buy about $5,000-10,000 worth of each stock you recommend in your million dollar challenge account, so it's a little dangerous.

What would you recommend for me? Should I just stop using protective stops altogether and just wait for your sell signals, then put in a sell order for the open of the next day?

Thanks very much,

Michael

[Dr PennyStock]

Your case is complicated, if you want to trade penny stocks, you need to be at the computer because they are volatile and they can move very fast.

You can put a buy order and after buy, put a stop limit order to protect in the case of a sell-off and a sell order above, slightly below the price I think it will touch, but, this is not the best, it's the possible.     

[michael23]

Thanks again for your reply!

As you said, I have indeed been setting up sell limit orders just below the price you think it will touch. However, what do you recommend for the stop below? Should I try some percentage below the buy price, or put it a little below the support level? I've been trying the latter approach but, like I said, I've been stopped out a few times now when you've remained in (and thus lost money while you've gone on to positive returns). Maybe I should zoom out on the chart more and use a longer-term support level? Can you recommend a time-frame that's generally best for finding good supports in this case?

Thanks again!

[Dr PennyStock]

Below the buy price is better to use a support level, put the stop limit slightly below the support, suppose the support is .080, put .079.

About the time frame, I use always the "Fill the chart" range, on stockcharts.com, this is my template, I recommend to use exactly this way as I use it with  success since about 10 years.

http://stockcharts.com/h-sc/ui?s=HAYZ&p=D&b=5&g=0&id=p88947975366