As the new author of The Daily Marijuana Observer's new Cannabis Technical Trader Premium Weekly Newsletter, I thought I'd introduce myself with some useful tips for trading and investing in low-priced cannabis stocks. Having over 20+ years of financial writing, trading and technical strategy development under my belt, I hope to use these skills to help The Daily Marijuana Observer's readers profit.
My Tips & Tricks to Trading Low-Priced Marijuana Stocks
Use limit (LMT) orders to enter and exit, unless a stock has sufficient liquidity (trading volume and a close bid/ask spread) to warrant a buy stop or market order.
For stocks that trade at less than $1 or $2 per share, consider using a 'scale-in' strategy, buying a small position first, then adding another third after a 5% rally and the final third after another 5% rally. This strategy can greatly reduce your losses on the trades that simply don't advance very much, and which eventually stop out. If a $1 or $2 stock is destined for a multi-month (multiyear) bull run, paying a little extra on the final pair of entries is a minuscule price to pay in exchange for the peace of mind that comes from knowing your 'bad' trades almost always stop out for a tiny dollar loss.
Diversify across a large number of cannabis stocks, especially if you intend to be a long-term investor rather than a short-term swing trader. No matter how much you research a company's fundamentals and news releases, sometimes even the most promising stock can simply turn into a 'sparkle and fade' or even a 'crash and burn' affair. You might decide to hold the stocks for one, two, three, four or even five years, based on the probability that at least several of the marijuana-related stocks will be long-term survivors that will go on to be 'huge' percentage gain winners, far outstripping the more modest losses and gains on the lesser stocks. For this strategy to work - and to minimize stress - the dollar allocations need to be exactly the same for each stock; 'cherry picking' by allocating more or less cash per stock will invariably destroy the effectiveness of this method, so be warned.
A more aggressive strategy would be to buy only the strongest relative strength cannabis stocks, perhaps the top eight 13-week relative strength (RS) cannabis stocks (vs. the S&P 500) and then hold them for four, eight or twelve weeks; you can find these stocks listed in every edition of this newsletter. At the end of your chosen holding period, you would again rank the cannabis stocks by their 13-week RS, sell the ones that no longer make it into the top eight RS ranking and buy the new ones that make the grade, always keeping eight stocks in play. This is a pure momentum strategy that typically shines during sustained bullish advances, but can whipsaw and cause losses during flat or bearish markets; using a simple trailing stop on each stock can help lessen losses during flat or bearish periods.
For the shorter term swing trades recommended in this newsletter, always limit your per-trade trade risk to no more than 1% to 2% of your account equity. Losses are a fact of life as a trader, so never let any one trade or series of losing trades destroy your account. You also need to honor stop-loss exit orders and take progressive profits near key cycle highs and volume supply levels (I will suggest the likely times to sell) to make swing trading an effective strategy.
Be aware of commissions; these can really add up on penny stocks that trade at $1 or less per share depending on how big a position you want to take; negotiate the best deal with your broker or find another one who has rock-bottom commissions. Or simply stick with the longer-term strategies listed above to dramatically reduce the number of trades you make per month/year.
Stay tuned for more of my marijuana stock technical analysis, and be sure to subscribe to The Daily Marijuana Observer's Cannabis Technical Trader Premium Weekly Newsletter before subscription rates go up.