My first blog post here on Profitly. Wanted to share my Friday experience and to remind everyone about risk and reward, especially with a small account. 

 

So this was a no trade Friday for me because of 2 reasons:

 

1. I didn't see any perfect setups for myself. I'm trading with a small $2,000 account and primarily focus on smaller stocks between $1 and $5. From the premarket scanning, the biggest percent gainer in this price range was $MITK, so that was my main watch for the day. I didn't trade it because it never broke over it's $4 resistance. I don't trade mid-range, so I was waiting for a breakout above the $4 resistance level. It got to $4.03 but I didn't buy because Level 2 showed more sellers than buyers. I usually leave a "Buffer" zone above the breakout resistance levels to make sure it's not a fake out. Then it never broke much past $4 and closed below $4. Will watch again Monday for a break out. 

 

2. I saw a lot of potential stocks premarket with good news that actually did breakout quite well such as $WTW, $ERII, and $BCEI. I kept them in my watchlist just to see if I was right, and I was, they all did get to new highs on the day. So why did I not trade them? Well, simply due to risk/reward. $WTW was trading around the $20 price range. On my small $2,000 account, that means the max stocks I could buy is 100. Then in order for me to make $100, the stock must move $1 or more. Very risky and very unlikely to happen. So I'm investing my whole account for a $100 potential reward. After TDA fees, that's like $80! No thanks. The higher priced stocks don't move that much. A $2 stock can easily double or triple. A $20 $WTW stock wont double for sure. Even though it went up about $2.50 on the day, which was much more than I expected, it just wasn't rewarding enough initially for my small account. Same with $ERII and $BCEI. Those stocks would have to make HUGE moves just for me to make some decent money, and I didn't think it would be very likely. I much rather wait for a $2 stock to move to $3 and make A LOT MORE MONEY on my trade! I'm also under the PTD rule, so less trades is good. That's why I hyperly focus only on trades that will make me a lot of money or I'm not interested. 

 

So this Friday, I didn't trade. I don't force trades, and you shouldn't either. If the right setups don't occur, just stay out and watch. Wait for the perfect setup to occur before getting in. Why risk your money? Why waste your PTD trades? 

 

Please comment or give Karma! I'll try to post more these "mini" lessons as they come!