Hey, this is Sasha. Thanks for joining me for another episode here on ‘Hungry for Returns’ where I answer your trading and investing questions in more detail. I like the video because it’s much more in-depth than what I can do on email.
So, if you have trading and investing question that you’d like to submit, be sure to submit one on our website at https://tradersfly.com/. You can submit a voice a video question, even an email question if you want. At least then if it’s a good question, we can go ahead and record an episode for you. That way your question gets answered in detail.
This week’s question
“Hey, Sasha my name is Ryan. I’ve been swing trading for about a month now. I’ve seen 10 percent returns so far. But I’m having some difficulty of figuring out when I should sell a stock that’s not moving. Particularly, the ticker symbol NG. I’ve held it for three days, and I’ve not seen gains or losses whatsoever. Would you consider that a stagnant market? Should I go ahead and sell and get later? Or should I continue to hold? Thanks. Bye.”
What I want you to get from this video is I wish to share with you two main points. There are more points beyond that but two main points from this lesson.
The first is that stocks don’t move when we want them to and the second point is trading and looking at penny stocks is more like eating junk food.
The first thing is when we look at Ryan’s question, and I would don’t have a chance to answer it in time before that sluggish move because it was about a week ago that he asked the question — which this NG ticker symbol, which is a penny stock. In my book, anything under $10 is a cheaper stock. It’s typically considered a penny stock.
Over here is where this stock was acting sluggish and moving around. This is what he was asking right around this time frame.
You can see what happened to this stock is it sold off in a big way.
What typically happens is we’re always anticipating a move in stock right after we get in it because we’re watching it. We were active in it. We’re focused on it. We want something to happen. We’re looking for action.
The market is much slower than our perception of time
That’s why you have to be much more patient. That’s why investing takes multiple years.
If we’re looking for date trading activities or multiple days holds, you’re looking for breakout movements. For a movement where it’s breaking, let’s say resistance or support and that way you can get in on the movement of the stock.
If you’re getting into a stock where it’s just digesting and moving sideways like this into a triangle pattern, it’s digesting, and it could be digesting for weeks, months, or even years.
Depending on how long you plan to hold this.
If you’re a swing trader you might look at hey I might hold it for five days and then get out if it’s sluggish if you’re a day trader you might keep it for one or two hours if it’s not moving and then get out
If you’re a long-term investor, you might hold it for four to six months. If it’s still acting sluggish, then you might get out of it.
Remember when stocks are acting sluggish, that usually means they’re building for something. They’re building either to the upside or to the downside.
In this case, when we talk about penny stocks, which is my point number two.
Penny stocks are typically like junk food
They, most of the time, when you look at ordinary stocks, they’re going to appreciate with time.
You look at any regular long-term company — Apple. Look at Netflix. Any big company. They’re looking to appreciate with time.
Penny stocks, on the other hand, in general, depreciate with time.
Some of them can break out. You can see some fantastic returns. Like you look at NG here. Broke out in 2003, got into the $20 low but then eventually it tumbles back down. Then again, you might get that massive run-up, but still, that’s the natural tendency of penny stocks.
You think about junk food. When you’re eating a hamburger from a fast food restaurant might taste good initially, and that’s where you might get that little spike for a year, a couple of months. Depending on how long that penny stock can sustain those things but then eventually it comes back down because you don’t feel as good. It’s not as good for your body as maybe eating a salad.
That’s the thing. When these stocks build typically for most penny stocks, you can make money on both sides. You can make money on the short side or the long side, but in general, the natural tendencies for them to sell off and you can see here this is what happened.
Unfortunately, the question was asked about a week ago. So I can’t be that quick to answer these video questions by the time we get the video going. But I hope this makes sense in the future is that — if you’re looking for a stock to break out right away, when you get it, you got to be a little more patient. You have to wait a little bit longer.
If you’re a day trader, you might wait for one to two hours.
If you’re a swing trader and your typical hold time is 30 to 60 days, you might hold it for a few days.
If you’re a long-term investor, you might hold it for 3 to 6 months.
If it’s still sluggish, then you might get out of it.
Usually, that’s what I would look at.
Final Word
If you’re trading penny stocks, you want to be a little more careful because remember that it’s a little more like junk food. Where you get those initial spikes but overall the natural tendency is for them to sell off.
Now, that’s not always the case. There are some penny stocks that do well. Continue to rise and continue to appreciate and become bigger companies. But the majority of them don’t typically work out. So when you look at penny stocks, you need to be a little bit more careful about that.
