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Intro to Penny Stock Trading Psychology - Day trading for beginners - YouTube
Channel: Humbled Trader
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The biggest misconception Iâve seen in many
beginner day traders is that they are always
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on the quest to find the best penny stock
trading strategies, penny stock patterns,
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and indicators etc.
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What most fail to realize is that those things
only work, if people use them.
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In order to profit we must think for the other
buyers and sellers and understand who are
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the players and who is in pain.
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The most common players in the penny stock
market are, break out traders, momentum traders,
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dip buyers, short sellers, and swing traders.
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I will be breaking down the basics of these
tradersâ psychology in the market.
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So you will be able to analyze and profit
from day trading beyond just memorizing patterns
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and strategies.
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Iâve spent a lot of time preparing for this
video all by myself to make sure there is
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100% value and 0 hype.
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So if this sounds like something that can
benefit your trading, make sure to watch till
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the end, nd drop me a like so others can benefit
from my videos in the future
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The first one we will go over are the breakout
traders.
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These are the traders who buy into a penny
stock when itâs at the point of breaking
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a previous high.
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Letâs look at the $ABIO intraday chart here
on May 1, 2019.
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On this day the stock got pumped up by PR
and traded as high as $9 from $5 in the morning
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session.
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It sold off a little bit mid day and retested
the previous high at around 1:20pm in the
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afternoon.
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At this retest price.
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Breakout traders see that, hey the stock is
about to make a new high nad think to themselves.
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i can see the price break $9 and possibly
go up to $10 or even more.
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I must get on this.
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Break out traders are the most predictable
traders because it is the most common âstrategyâ
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taught in penny stock day trading courses,
dvdâs, and chat rooms.
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They term this strategy âbreak out patternâ,
âU shape patternâ etc.
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This is very important.
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Weâll come back to talk about this in detail
a little bit later so hold on tight.
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You can see the increase in volume in the
stock around previous price level of $9 as
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more break out traders hop on to this stock.
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In this case, there is more breakout traders
than the sellers.
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So this break out becomes successful.
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The stock breaks the previous high in the
morning at $8.95 and run higher to $11.50
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and then almost $13 dollars at 2pm.
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Once all the traders watching $ABIO see that
the stock has just made a new high breaking
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above the previous resistance of $8.95 for
them, this is where the momentum traders get
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interested.
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this is what those players are thinking.
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âOh that break out on $ABIO was successful,
and when stocks break previous day highs successfully,
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itâs really likely that more volume are
going to pile in.
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so i should hop into strength as well!â
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So these momentum traders hop on in along
with the breakout traders.
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And that's why many times when penny stocks
break a previous resistance with strong volume,
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the price will squeeze even higher.
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Remember this, Momentum traders join strength.
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And when strength weakens, this where momentum
traders sell their position and get out.
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You can see right here on this 10 min candle.
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The breakout traders who got in to break the
previous high of 12.69 failed.
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The stock only went twenty cents higher at
12.88 and quickly slammed back down to $11.
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This is a sign of weakness and extension.
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And when the stock no longer has strength,
this is when the momentum traders who got
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in earlier start selling and there were not
enough fresh break out buyers coming in.
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so the increase of selling and decrease of
buying causes this sell off for the stock
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from $12.80 back down to $10 and below.
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This is where the third kind of players come
in, the short sellers.
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Short seller love to lurk at the top of each
stock.
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These are the traders who can spot increase
of selling and decrease of buying in the volume
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and level 2.
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Short sellers love overly extended stocks
on the day like $ABIO.
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So they saw $abio and these shorts thought
âummm okay, this stock ran from $5 to almost
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$13 today.
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This is over extended.
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I think the buying has slowed down and selling
is going to increase now.
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I want to short this stock downâ
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So in this case, if the short seller entered
at the top around 12.80.
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He or she was correct their thesis and they
made profit from the stock selling off all
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the way down below $10.
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However, there are always those impatient
short sellers.
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Those are the shorts who got in too early
from earlier.
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Some traders love to short everything thatâs
up.
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So they short here at $7, $8 and and remember,
previous high was $9.
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So i bet you there were many shorts taking
entries around that price at 1:20pm.
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Well, those short sellers got in too early.
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There were more breakout traders and momentum
traders buying than the overall selling.
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And the stock was breaking highs.
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When that happens, these early short sellers
are thinking to themselves.
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âHoly ***, I didn't think this stock could
possibly break $9 and now its breaking above
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$10.
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I am down a lot now i thought this breakout
will fail but im wrong.
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What if it goes to $20 or $30.
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Oh my god I better get out before i blow up
my accountâ.
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So the short sellers who are in pain decide
to get out.
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And they need to buy to cover to get out.
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That causes a short squeeze.
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the shorts buying along with the break out
traders and momentum traders buying, causes
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this stock $ABIO to squeeze even higher right
here.
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So letâs get back to the successful short
sellers here.
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If i was a short seller who shorted at $12.80
and now the stock is back down at $9.
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I would start to cover a piece around this
level at $9.
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Why?
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Because i know that dip buyers are going to
start coming in.
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Dip buyers are the fourth kind of players
you need to keep in mind of.
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These are traders who buy into a stock when
they see that a stock has made a high and
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retraced back to previous support level.
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Dip buyers love to get into the stock on pull
backs after it shows impressive strength to
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the upside
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For example, dip buyers would be looking at
the $9 level here and think âmmm , the stock
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was just trading around 12 dollars and now
its pulled back.
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I can buy into this at a cheaper price.
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Previous resistance level was $9.
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And previous resistance once broken becomes
support.
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Ok $9 is a support price i think itâs reasonable
to buy in hereâ.
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And at the same time, short sellers also look
at the previous support levels at $9 and think.
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âOk, i need to beware of dip buyers.
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They may look into getting into this stock
at this level.
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So i better start covering up.â
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And its this exact balance between all players
in the market that create these support and
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resistance levels.
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Dip buyers buy at $9 and short sellers buy
to cover, that makes the stock price to bounce
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from $9 again to $11.70.
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And this bounce pattern only happened because
dip buyers and shorts came in to buy.
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This is why iâve stressed in many of my
previous videos, donât focus on memorizing
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patterns, focus on understanding the players
involved in the stock and what they are doing
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to form the pattern and price action you are
seeing right now.
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Think for the other traders.
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And thereâs more, Iâm not done yet.
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So at the end of the day on this day one run
up $ABIO closed around $9.
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The next day on day two we can see the stock
gapped up to $19 pre market.
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This is where the fifth major player comes
in.
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the swing traders.
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Swing traders are the people who love to buy
a strong stock holding gains overnight.
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Which is an important criteria iâve mentioned
in my penny stock swing overnight video.
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Swing traders would be thinking here on May
1, âok this is only day one of this move
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on $ABIO.
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This penny stock is holding up itâs gains
really well and not sold off.
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I think the news release could potentially
drive more buyers to come in overnight.
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Then i can sell my position at tomorrowâs
gap up or into a morning spike.â
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So the next morning.
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Guess what, these swing traders are laughing
to the bank.
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The stock is trading at $19.
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And the swing traders are thinking, âwow
this is amazing, i just made $9 a share in
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less than 12 hours.
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I better lock in some gains in case this stock
sells off back down to $10.â
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At the same time, letâs think for the break
out traders who are trading by following chat
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room alerts.
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Remember I mentioned earlier that weâll
come back to those people?
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The most common day trading chat room strategies
are buying breakouts of previous day highs,
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premarket highs etc etc.
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Now letâs put short sellers into consideration
as well.
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As i mentioned there were shorts piling in
around $12.80 the day prior and probably held
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overnight because they think the stock could
sell off even more back down to $5.
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So letâs now put these swing traders, break
out traders, and short seller puzzles together.
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Swing traders, after profiting $9 a share
overnight.
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What do you think they are more likely to
do at the market open.
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They would probably sell and take their 90%
ROI and run.
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Short sellers who were holding short overnight
from $12.70 woke up to see that they are down
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$7 a share.
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Theyâd probably panic and want to buy to
cover immediately at market open.
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Break out traders in all these penny stock
chat rooms.
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They would probably get an alert by their
moderators to buy at the break of premarket
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high $19.50 and sell at the next whole number
$20.
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So at the market open, break out traders pile
on to buy at the premarket high of $19, short
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sellers buy to cover, those two players together
drove the stock shares up from $18.30 to a
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little bit above $20.45.
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Swing traders who got in previous day, they
want to cash out on overnight gap up or spike
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at the open.
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So they start selling their overnight positions
at the same time and taking home their profit.
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The amount of selling outweighs the fresh
buyers and short sellers covering.
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So the price did not go higher.
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This is when chat room followers and break
out traders panic âoh ***, i thought the
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stock was going higher to $25 or $30 after
i bought at $19.
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But now itâs breaking down below premarket
highs at $17 now.
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I better cut my losses before the stock tanks
back down to $5.â
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so all these break out traders who are stuck
at $19 or $20 at the open start selling as
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well.
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Now the smart short sellers who didn't get
squeezed from their overnight positions, they
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would be lurking around this premarket high.
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They would be thinking â ok the stock just
gapped up $9 overnight.
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If i was long and up so much i would totally
sell and take profit.
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I think this stock might spike a little bit
at the open with people chasing and immature
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shorts covering, but i think ultimately there
would be more sellers than fresh buyers, i
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want to take this shortâ.
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Basically this is the foundation of the gap
up strategy I mentioned in my prior video.
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This is the cause and effect relationship
that i think is so crucial to understand.
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Chart patterns are byproducts of psychological
decisions by buyers and sellers in the stock.
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This is why no patterns or strategies are
100% guaranteed.
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If dip buyers didnât come in today to $ABIO
at $9 here on day 1.
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Do you think the stock would have bounced?
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If there werenât enough break out traders
buying than selling, do you think this break
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out would have been successful?
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Most people think to make money in day trading
penny stocks you need to understand the market
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and analyze the patterns.
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Sure that could help, certainly.
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But really it's not you against the market,
itâs you against the other people in the
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market.
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This is why I believe day trading psychology
is so important.
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You have to think for the other players involved.
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This is the kind of psychological analysis
that will separate you from the sheep that
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follow alerts and study just patterns.
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Donât trade chart patterns.
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Understand the traders in the stock.
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And trade those traders.
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If youâve found this video helpful please
do comment below and let me know.
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I have more trading psychology videos in mind
but iâll only do them if you guys actually
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enjoy videos like these.
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Hopefully you can tell that i put so much
effort into creating these free videos that
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will help you guys out.
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All i ask in return is please drop me a like
and leave me comments down below.
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It really does help a lot.
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And that will encourage me to make more videos
like these for you guys in the future.
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And don't forget to subscribe and ring that
bell icon to get notified first on my future
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videos.
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This is the humbled trader.
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Thank you guys for watching and i will see
you next time
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