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Highly disciplined traders are generally very responsible people with a long history of being punctual, factual, and characteristically functional for every available moment of perceived responsibility. Since trading takes an enormous amount of discipline, traders such as this are likely to do very well when it comes to sticking to their trading plan, following through on their intention, and creating an environment of success. However, what about risk taking? For all that discipline buys any trader in the game, there are times when a risk is a necessary call.

You can’t make it through the trading world only taking risks just as you can’t make it through the trading world only by maintaining discipline. Sometimes there has to be a bit of give and take to make it all come together under certain situations. Learning to recognize those situations and making good use of them is part of becoming the type of trader that you are looking to become.

Using discipline to get where you want to go will work most of the time. However, because there is a much lower tolerance for risk taking and going against the grain, there is also the likelihood that a disciplined trader will remain quite average for a long period of time. Without the ability to assess a good risk, the disciplined trader will continue down one specific path until there aren’t any other choices. The undisciplined trader will make a great number of mistakes while they continually abandon their trading plan time and time again.

Finding a firm and well achieved balance between the two is not as simple as perhaps it should be, but in the spirit of growth it is necessary to play around with both of these elements and start learning when it is a good time to stick to the plan and when it is a good time to become more free and more radical in the judgments of the market. When you can’t control the outcome, such as is the case in trading, you also can’t control the effectiveness of any given trading plan. Since you can’t control the market through basic self control, then your only choice is to develop skills that allow you to notice when conditions are changing enough to encourage a little more risk from your perspective.

The beautiful idea behind all of this is that you get to try on new things and see how they work out. While it might be more comfortable for you without the existence of the financial link, you don’t necessarily have to commit to using your money. There is no reason why you can’t go through a lot of this without any money. If you simply make decisions and track it as though you had made the investments, you can learn without financial risk about the nature of self control and discipline and personal growth and freedom to change your mind.

This is not to imply that discipline is not one of the keys to successful trading because it most absolutely is. But instead of dedicating all of your time to learning and honing self control, you should also be noticing when to not in total control and when to go with your gut over your documented trading plan.

When a trader decides to exercise the disciplinary muscle, he is most often alone in the mix. He isn’t taking into account the actions of others and he (or she) isn’t really grappling with exercising any of the freedom to make an impulsive decision muscle. This is all fine but when you decide to stick with only one particular methodology then you tend to miss out on other opportunities. Learning when to exercise total self control and when to exercise total risk taking behavior is only something that a little advice and experience can effectively teach.

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Generally when we think of stocks & shares the names that immediately comes to our mind is names of the big stock exchanges like the New York Stock Exchange or NYSE, the American Stock Exchange or AMEX and the National Association of Securities Dealers Automated Quotations or NASDAQ. Penny stocks are low priced stocks of small companies whose market value is below $100 million and they trade in low capacity.

Penny stocks deal with other exchanges such as the Pink Sheets and OTCBB. Investing in penny stocks means preparing yourself for a good amount of risk because of its low capacity trading features. Thus the Securities and Exchange Commission has warned investors that due to its low trading capacity the investors may not find a buyer for these shares and also due to the unavailability of precise rates there are strong chances of investors losing their investments completely.

Penny stocks do have their fair share of advantages though, which suits those investors who are new to this field and want a good investment plan which can result in increased profits with a lower investment. The price changes can take place a number of times in a day which adds to the appealing factor. You can get double or even triple the value of what you originally invested in penny stocks. So this is a great attraction.

Penny stocks can also affect you adversely if the stock values dip suddenly, so those who are new and inexperienced should be careful before deciding to gamble with the major chunk of their investment. Also because the requirements are not very demanding on the OCTBB and Pink Sheets exchanges, these companies lack guaranteed investment returns.

Most of the companies listed with these exchanges do not have credible financial backgrounds to predict whether they are good investment options or not. Sometimes the companies that are closer to bankruptcy levels or those that are new are associated with penny stocks. Some traders have resorted to unethical measures by buying the stocks in bulk to create an impression on individual investors for a need to buy them.

As most of the stocks are less in demand, the investors will have to quote a lower price that can result in incurring a loss. However, not all companies take to fraudulent tactics. Some may be small companies that are gearing up to take their place on the larger exchanges. But as an investor it is better that you choose the company that you have done satisfactory research on and whose market value you know will increase in the future.

The Author’s website Buy Penny Stocks Guide features articles, tips and advice to help you understand penny stocks. We also look at how to spot Hot Penney Stocks - and see if there’s any money to be made buying oil penny stocks.

Many traders feel that they must be in the market all of the time. Wrong! There are times when it is prudent to “Stand Aside”. This happens to be one of those times. The wild swings we have had in the markets are indicative of uncertainty. Uncertain markets are prone to large moves up or down on news. Case in point; at this writing, there is news that the government is going to step in with a repository RTC type plan to save failing banks.

Nobody at this time knows the details but the news of the plan drove the DOW up 410 points in the last few hours of the trading day. Certainly, money can be made on such swings but the lack of orderliness can be unsettling and trading in such an environment can be akin to playing roulette in Las Vegas. Trading during massive moves appeals to many traders, which is fine. However, I have known many to get crushed when trading those kinds of markets.

I recently closed some short positions for a nice gain at what appears to me to be a short term bottom and until the market begins to stabilize with narrower range sessions, I will “Stand Aside” or at minimum enter only hedged positions. It really is ok to “Stand Aside”. It doesn’t mean you are a “Trading Wimp”. It means you are smart. Who cares anyway, your trading patterns are your business. I prefer to catch the “Belly of the Move”. You can excel in trading by being a trend follower.

You don’t have to pinpoint every top or bottom. Although, as you progress in your trading, some of you will be able to develop your skill and ability to see turns in the market and that is a bonus. Please don’t play that game until you are ready or you will get hurt.

Remember, be true to your trading plan. Do not trade with emotion. Understand the importance of position sizing and diversification. (Position sizing and money management will be a future article so stay tuned.) Finally, I heard an anecdote that was shared on CNBC this week by Dennis Gartman of “The Gartman Newsletter”. He spoke of when he was a floor trader and experiencing a market similar to what we are going through now.

While trading in the pit, he turned to a colleague and said, “Are you nervous?” His friend responded “Yeah! and I am flat!” (Flat means no positions.) If you know when to “Stand Aside” and be “Flat”, you will more than likely enhance your trading results and be able to sleep at night.

Mark Espy (aka RobinHood Trader)is a full time trader and professional educator. Mark loves to help others master trading skills and is co-founder of a rapidly
growing trading education company. Receive a free lesson and learn more about how to improve your trading skills.

There are actually a few ways to make money in a bear market but the main one we will discuss here is called Short Selling.

Short selling is a technique that many stock brokerages allow. It allows you to Sell High then Buy Low, which is the opposite order of the traditional Buy Low, Sell High technique.

First, you will need to apply for a margin account with your trading brokerage. Having margin gives you the ability to buy more stock than the cash you have available by borrowing money from your brokerage. This is also called leverage because it allows you to do more with the money you have. All brokerages require a margin account to do short selling.

Second, you need to find a stock that you believe will be dropping in price soon. However, not all stocks are available for shorting due to supply limitations or other restrictions. When you go to short sell this company, your brokerage will let you know if it is available to short on their system. The brokerage needs to have those shares available to lend to you before you can sell them.

This concept may sound strange, but after you read more about it and try it on your own it will start to make sense. It is used successfully every day by thousands of traders. It is somewhat controversial, however. In fact, the SEC considered banning it for a while. But after they made better regulations on it, they decided to continue allowing it because it is a healthy part of the market. When prices are dropping, who is going to buy the shares from people needing to get rid of them? Short sellers, along with traders looking for bargain prices.

Caution: Before you try it this technique, keep in mind that you will be “swimming against the current,” so to speak. The market in general has a tendency to go up about ten percent every year. You will be betting that the company is going down in value, which is the opposite intent of most companies! The owners and managers will be trying to turn the company around every day, so do not hold your shorted position for long! You should also practice this technique with an online stock market game to get the hang of it.

Nicholas Swezey is the creator of the Stock Market Game at HowTheMarketWorks.com.

Dollar Cost Averaging, or DCA, is a technique where you purchase a fixed dollar amount of your favorite investment at regular intervals, such as once per month.

When prices are down, you will receive more shares. When prices are higher, you will receive fewer shares. The idea is that you will be able to take advantage of dips in the prices but also minimize buying at higher prices. In the long run your average share price will be somewhere between the highs and lows throughout that time period, resulting in less volatility than putting all your money into just one or two large trades.

This technique is very simple and can be set to run automatically on many online brokerages such as ShareBuilder. This is a great option for investors who do not have time to sit at a computer every day watching for the perfect price to come along.

Example
Let’s say two traders have $10,000 to buy Microsoft shares.

Trader A decides to put half of his money in right now at $28 per share, for 187 shares, and half of his money next month at $30 per share, for 166 shares.
Overall, he purchased 353 shares at an average price of $28.94.

Trader B decides to use DCA over a 4-month period, which is $2,500 per month. He receives 89 shares at $28, 83 shares at $30, 96 shares at $26, and 92 shares at $27.
Overall he purchased 360 shares at an average price of $26.67.

In this case, Trader B came out on top, purchasing 2% more shares at nearly 8% less than Trader A. That won’t happen in every case, but you get the idea.

Why it Works
Since the markets have historically gone up over the long run, buying shares at regular intervals over the long run should go up too. DCA should reduce the effect of volatility in the prices throughout the year, but it will probably reduce your chances of large gains. This is the classic tradeoff in investing of risk versus reward.

Further Diversification
Any single stock has the potential to “bomb” on you, causing massive losses. One great way to reduce this risk greatly is to trade mutual funds, which often spread out your money over hundreds of different stocks. Combined with DCA, you should have a relatively safe and easy investment strategy.

Disclaimer
This technique is not guaranteed to make you profits or eliminate the risk of losing money. It is really just a way to average out share prices. For example, if a stock is dropping in price every month, your average price will be lower and lower, resulting in a loss overall.

Nicholas Swezey is the creator of the free Stock Market Game at HowTheMarketWorks.com.