Lessons Learned from my Short Stint in Day Trading
Over the past weekend, I have been looking at some of the most actively traded stocks on the STI on Friday (all penny stocks), identified support/resistance lines, and possible trading opportunities for day trading (yes I know that they are extremely risky, and if not careful, one will suffer massive amounts of losses as a result.) The reason why I went into it because I want to gain some first-hand experience about it (for experience sake) and if it fits me, then maybe I can consider pursuing it a little further.
There are a couple of counters I've identified (I shall not be naming the counters here to avoid speculation), along with my buy/profit target prices, and what to do if the worst actually happens (so that I do not lose any money, and even if I lose money, I will cut my losses to the minimum.) I've also entered queue to buy those counters at my targeted entry prices, and decide to monitor the share price movements on my TradingView account.
As expected, the share prices of these penny stock counters moved fast and furiously (especially during the 9am-10am period when the market opens, and also between 4.30pm-5.05pm before the market is about to close.) I managed to enter trade at 4.56pm for a particular penny stock counter yesterday (actually I was supposed to withdraw my trade at 4pm that day because I wanted to avoid the "end of day" share price volatility but somehow I forgot about it, as I was busy with my company researches - as you know, I am also actively researching on companies where I can possibly invest for the mid- to long-term.)
Thankfully, I had a plan in place and I executed the plan but the time was too short to sell off all my positions before the end of the trading day yesterday. So I set my queue to sell the remaining shares this morning.
But little did I expect the stock market to tank today (where the STI dropped more than 1% when it opened this morning) and no surprises there, that the penny stock counters dropped fast and furious when trading commenced this morning as well.
I had to execute my other plan (remember before I enter every single trade, I will draw out the best case scenario, along with the worst case scenario), and thankfully, I managed to sell all my shares to this counter without suffering any losses (in fact I've made $4 - enough for a plate of economic bee hoon for myself - I have to top-up for a cup of coffee. Haha!)
So, what are the lessons I've learned from this little experiment into day trading for me, and also advise I would give to fellow traders (especially those who are new to trading) who wishes to trade in these penny stocks?
1. Day trading is certainly not for everybody - I admit that day trading is probably not for me as well, as I do not have the time to keep my eyes peeled on the share price movements - because as I've mentioned earlier on in this post, I spend a bulk of my day identifying companies where I can invest for the mid- to long-term, as well as researching about them.
2. A plan is extremely important - I would probably have suffered heavy losses today without this plan of mine. I have been talking about it every time because it is just this important. If you do not have a plan, then do not simply enter a trade just because you want to make quick money, as most of the time, you'll just end up in red.
3. A calm mind is absolutely necessary - Especially when day trading in penny stocks, if you are those who will panic when the share price movements does not move in your favour, and simply refuse to sell to cut your losses short, then day trading is not for you.
4. Do not suffer from FOMO (fear of missing out) - I was browsing through the conversations happening in some trading forums for a good part of my afternoon yesterday (again I will not name them). From the conversations, I noticed many people suffering from FOMO, wanting to jump into these penny stocks because they see others making money from it. But the thing is, they themselves do not have a trading strategy in place! All they wanted to know is the price which other traders enter trade and they just blindly follow (this is akin to dashing across a busy road with your eyes blindfolded, and you're just following it simply because other people have crossed the road unscathed.). For me, I stick very closely to my buying and selling prices, which I determined based on technical analysis. If my buying price are not hit, I will not chase and up my buying price just because of FOMO.
5. A sound technical analysis skillset is necessary to trade penny stock counters - If you're new to trading, penny stocks is not for you. To profit from penny stocks, I learned that one needs to have solid technical analysis skills - which can be garnered from trading non-penny stocks on a longer timeframe over a period of time. It's only when you can start generating a more consistent result from trading the less volatile counters, should you even think about possibly trading in penny stocks.
The above are written out off the top of my head, as I reflect on the trade which I entered last evening (just before market close), and exited an hour ago, and I hope you'll find my experience share useful. :)