Chapter Two: Your Penny Stock Trading Mindset

Last updated on July 27, 2019

Your penny stock trading mindset may seem like it’s something that should be “strictly by the numbers,” right? . Can you handle it if a big loss wipes out a major chunk of your portfolio? How about if a stock you were sure was going to go up heads in the opposite direction? Can you get your ego out of the picture quickly enough to cut your losses?

Your mindset actually plays a pretty big role in your ability to trade successfully, so it’s something worth addressing well before you ever make your first trade. Ask yourself the following questions to see whether or not your mind is in the right place for trading penny stocks:


I’m going to let you in on a little secret… One of the biggest mistakes I see amateur traders—even some of those in my millionaire trader challenge—make is to trade for the hell of it. It sounds crazy, but people trade for all sorts of reasons. Maybe they have a good feeling about the company, or maybe they got a “hot tip” off an email newsletter telling them that XYZ Company is going to be the next IBM.

( Spoiler alert —we’ll cover this more later on in this guide, but if you’re getting your stock tips off a public mailer, there’s a good chance they aren’t really “hot” anymore! )

Maybe these traders are just so anxious to make any kind of play that they force trades, even when the technicals just aren’t there. Who knows? People trade for all kinds of reasons and most of them aren’t logical. That’s why so many people lose money in the stock market and then have the nerve to say that it’s risky. Well here’s the thing, it’s not risky if you stick to a set of trading rules.

I have a set of standards that I abide by—if a potential trade doesn’t meet them, I don’t play. I’ll share some of them with you later on, but for now, what you need to know is that there’s a structure to what I’m doing—a method to my madness: or a penny stock trading mindset .

Am I always 100% perfect at following my rules? Of course not. I’m only human—I get emotionally tied up in trades from time to time, just like you will. But that’s the exception for me, rather than the rule.

When it comes down to it, it’s a question of mental discipline. Are you strong enough to walk away when a trade doesn’t go as planned? Can you keep yourself from jumping on a “hot” stock’s bandwagon, despite its promises of vast riches? If you aren’t confident in your ability to stick to your trading rules, work on building up your discipline before jumping into pennystocking.

Am I willing to work hard?

Am I willing to work hard

If I wanted to, I could be like all the other stock trading teachers out there and tell you that “my simple system” will earn you loads of money while you’re either a) sleeping, or b) hanging out on your yacht all day.

But do you know why they want to make it sound so easy? Because people don’t buy things that sound hard.


I’m not going to lie to you. Working full-time as a stock trader isn’t as easy as pressing a few buttons and collecting your profits. It’s not as hard as many people think, though. It’s not like you’re digging ditches—and you don’t have to be brain surgeon or rocket scientist smart to get it. Just like with any new career, there’s a learning curve—although, in this case, it’s one that you can cut substantially by following the recommendations I provide here.

Most of the hard work involved in penny stock trading comes from researching stocks. I don’t necessarily trade every day, so if you wanted to look at the actual number of hours I’m spending actively trading, you’d probably think that I have it pretty easy. But that wouldn’t take all the hours I spend reading through press releases, researching companies and preparing training materials for my students.

These aren’t easy tasks, but they’re ones that I enjoy. Yes, stock research can be time-consuming. But there’s really nothing that compares to the feeling of finding a stock with great potential and knowing that your research will let you take advantage of an opportunity most other people will miss. Look at your research like a game—a potentially profitable scavenger hunt—and it seems a lot less like work and a lot more like fun.

Am I willing to fail?

difficult question to answer

Now here’s a surprisingly difficult question to answer. I hate to be the one to break it to you, but you could spend 23 hours a day doing nothing but stock research and you’d still lose a trade from time to time. I’ve been doing this for more than fifteen years, and I still only have an average win rate of about 75%.

So you’re going to fail—not once, not twice, but over and over again. And the thing is, our educational system doesn’t really prepare us well to fail. If we make mistakes in school, we’re marked down and we lose points. It’s really rare for a teacher to challenge students to figure out what they did wrong and what they need to do better in the future—rather than just punishing them—but that’s what you have to do if you want to be a successful trader.

Making trading mistakes stings, but it hurts a little less if you can figure out how to learn from them. Believe me, I’ve made some pretty huge mistakes in my time as a trader. I mentioned the 35% loss in value from my hedge fund earlier, but that’s far from my only big mistake. I’ve lost as much as $200,000 dollars on a single setup—and you better believe that hurts, no matter what lessons I try to take away from it.

But when you figure out what you did wrong, you decrease your chances of making the same mistake in the future. That’s a hard thing for most people to do, because it requires you to sit down and really examine the choices you made and the things that you could have done better. You know what’s not very fun? Sitting down and looking your failures dead in the eye. If you don’t, though—if you’d rather stick your fingers in your ears and pretend you’ve never once made a mistake – you’re going to bust your portfolio before your skills have a chance to catch up with your aspirations and make you profitable.

What am I fighting for?


This is another question that sounds strange on the outside, but is actually vitally important to your success with penny stock trading.

Too many students jump into trading with the simple goal of “being rich.” Well, what does that even mean? Does rich mean making enough from trading that you can quit your day job? Does it mean the freedom to send your kids to college wherever they want to go? Does it mean traveling the world full-time, or does it mean getting to all those new countries in your private luxury jet?

You might think your specific goals don’t matter, but they’re actually hugely important. Remember all that hard work and failing I mentioned earlier? What do you think is going to motivate you when you’re staring at SEC filings at 2:00 in the morning or when you’ve had another potentially great trade fall apart?

It isn’t going to be the generic thought of getting rich—it’s going to be that vision of your new life that’s so rich and detailed you can almost taste it that keeps you going.

So what I’d ask you to do is this. Before you move on to the next chapter in this guide, take a few minutes to brainstorm what it is you want to achieve with your penny stock trading. Don’t just make a list—get creative. Cut out magazine pictures, save motivating images to your computer’s desktop or print out a goal graphic and tape it to the wall near your computer.

ch-2-image-5In my case, when I was first getting my start as a trader, I posted a picture of a Lamborghini on my wall. That was the one thing I wanted more than anything in the world. But I didn’t want it because that it would mean I was rich. I wanted it because of how I knew it would make me feel as I drove around town (not to mention how I’d feel when I’d take it to pick up a girl I had a crush on).

Today, that Lamborghini is sitting in my garage. Well, it’s not the same exact one that was on my poster—it’s a 2013 Lamborghini Gallardo, a $235,000 present to myself for sticking with penny stock trading through the good days and the bad.

Remember, your goals could be anything. They could be as simple as paying off debt or buying a new car to impress your friends, or as splurge-worthy as a penthouse suite or a charity foundation bearing your name. Really dive in to find the things that motivate you and drive you to achieve. The clearer you can make your vision of what you’re fighting for, the more likely you are to stick with your penny stock training when times get tough.

Now, I know that you’re anxious to get into the specifics of how to trade penny stocks, but before we get into that, there’s some background information we need to cover. Remember, success with penny stocks comes from knowing what you’re doing and making trades in a thoughtful, educated way. And that means that we’ve got some education to do!

The next few chapters of this guide will cover some of the critical concepts and terminology you need to know before jumping into pennystocking. Pay close attention and take good notes. Read these sections through again and again—until they’re burned into your brain—before you even think about opening up your first brokerage account.

Tim Millionaire challenge