(By Greg Guenthner) When you are new to trading stocks, the first thing you must learn is how to tell a good trade from a bad one.
Spotting the good trades and knowing when to take profits is the cornerstone of any successful trader's strategy. And the sooner you learn to recognize you are in a bad trade, the easier it is to sell your shares and move on to your next idea.
Today, I'll use some reader questions to help you spot the good (and not so good) trades…
But before I continue, I want to let you know that our mailbox is overflowing with your charts and stock tickers. Thanks for all of your feedback and questions! It's always good to see what's on your mind…
We read every single one of your questions. But due to the sheer number of e-mails I've received over the past couple of weeks, I have not been able to address every request. I'm trying to find new ways of delivering answers to your trading questions, so stay tuned over the next several weeks for updates…
For now, I'm scouring your e-mails for the most frequently-asked questions and answering those first. In fact, that's how I decided on the topic of today's column.
Let's get to it…
I bought shares in ParkerVision (NASDAQ:PRKR) last October and it looked like it might be a pump and dump stock but I took a chance anyway on a small investment. It is up 130% and is currently trading just over $2.00 with three websites predicting a $27.00 price target. I don't see anything in their numbers to indicate where the stock might go or how $27.00 was determined. What do you think?
— B.D.
Here's PRKR:
Here's a situation where you want to make sure that your good trade (nice work, by the way) doesn't become a bad trade.
You've already made a lot of money on this stock. Now you have to plan your exit. The stock is a long ways above its rising trendline — and it appears to be consolidating just above $2. Your best move would be to set a stop loss between $2 and $2.10. Don't rely on some analyst's far-fetched price target. That's a great way to get left holding on to the stock if it begins to drop. I'm not seeing any evidence that promoters are pumping this stock — but you never know. Better safe than sorry…
Set your stop loss and stick to it! Remember, it's not officially a good trade until you've booked the gains…
What do you think of iTrackr (OTC:IRYS)? I saw an item recently that claimed increased revenues or earnings of 440%… do you see this company growing? Are they comparable to Groupon (NASDAQ:GRPN)?
Any insight would be appreciated.
— M.M.
Here's a look at IRYS:
This chart doesn't really need any annotations — it's ugly. That's one way to judge this trade. I wouldn't touch this stock just based on looking at its chart…
But there's also some flaws in your reasoning. Be wary of any company claiming to be the next Google or Microsoft — or even the next Groupon. From what I've seen, penny stock promoters like to hype up a business by comparing it to a household name — especially when it comes to technology stocks.
I don't know anything about this company, but I can tell you that it probably won't compete with Groupon. Heck, I don't even think Groupon has a good business model. Forget this stock. It would be a terrible trade…
Keep sending all your tickers, charts and trading questions to editor@pennysleuth.com.
Best,
Greg Guenthner
for The Penny Sleuth