Part Four: Discover How to Invest in Small Cap Stocks and Make Triple Digit Profits

 Part Four: Discover How to Invest in Small Cap Stocks and Make Triple Digit Profits

Ever hear the phrase "no risk, no reward"? Purchasing riskier small-cap stocks that have the potential to yield triple-digit gains doesn't necessarily have to be a dangerous endeavor. The first four rules in the first three installments of this series on small and micro caps dealt with buying techniques. The fifth and last rule in this article will deal with selling tactics.

Rule Number Five: Use disciplined selling methods to exclude emotions from your decision-making process.

After discussing how to invest in these stocks, let's move on to discussing selling tactics, as they are equally crucial. When selling, always set a 10%–15% stop loss on long positions and a 25% stop loss on options to minimize your downside. A large portion of the risk associated with trying to profit from double- and triple-digit profits is eliminated by using this method. In reality, having winning pick percentages between 70% and 85% would not be out of the ordinary if you honed your ability to spot possibilities. And if you reach these percentages, your enormous gains will outweigh the 15% of picks in which you lose several hundred dollars. When considering what to do with gains, follow this one rule.

Never lock in gains and avoid being avaricious.

There is no reason why you shouldn't profit from a stock that has seen rapid rise if you avoid becoming greedy. However, this situation does occur. And there's just one reason why this occurs. avarice. People will witness the greed-driven transformation of 100% profits into 20% losses.

Establish a predefined selling price, just as you did with your buy-in price. I would go with a more precise price rather than the buy in price range. Assume, for illustration purposes, that you paid $3 per share for stock YYY when you originally purchased it. Imagine that two weeks later, it surpasses your target price of $5 per share, a 67% rise.

What should you do now? Should I sell or hold on?

The situation is a little more hazy when selling methods are applied to quickly rising equities as opposed to falling stocks. A stock will automatically sell without your intervention when it crosses your 15% stop loss order (see to part I of this article). This decision will be made without any emotion involved. However, what should you do if the stock is rising rapidly and appears to have infinite upside? Depending on what is causing the price to rise. If the price is merely being driven by sheer speculation, sell half of your investment and set a 20% trailing stop loss on the remaining half. Put otherwise, I sell half of my position since stock YYY has increased to $5 per share from my initial buy-in price of $3 per share, and my stop loss price on the remaining half has now increased to $4.25 per share. In this manner, I have locked in my predefined 67% gain on half of my YYY position, with a 42% profit threshold on the remaining half.

Now, I might use a different tactic if sales and earnings are pushing the price upward. Rather than liquidating half of my YYY position, I will keep the entire amount invested, but I will once more set a 20% trailing stop loss, which will raise my stop loss price to $4.25. Although this technique carries a higher risk than the previous one, it is noteworthy that I am still securing profits. In this case, I continue to assure myself that I will profit by 42% regardless of what happens to the stock moving forward.

It's important to always take gains off the table or lock them in with trailing stops—I can't stress this enough. You detach your emotions from your decision-making process by doing this. You can make a lot more money by developing a disciplined sell strategy than by attempting to predict the performance of the tiny and micro-cap stocks you own. Because of all the needless stress you would have saved yourself by not using these tactics, you will also save a ton of money on the psychiatrist you won't need to hire.

In conclusion, you may invest in stocks with tremendous potential without the stress that comes with the high risk connected with some of these stocks if you always limit your downside and lock in gains with stop loss orders when buying tiny and micro cap stocks.

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