Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Saturday, December 6, 2014

A Basic Example of Spreadsheet Building

In my 2014 Vegas presentation, one topic I covered was how I use spreadsheets to track specific setups and try to find a statistical edge. There seemed to be a lot of interest in this process, so I'm going to go through an example of building a spreadsheet. As my example, I'll use tracking afternoon breakouts on listed stocks, but keep in mind you can do this for any setup you want to track. One important thing to note is that differing market conditions can definitely affect how different setups work. This example will use a VERY small sample size, which I would not consider statistically significant. So the more data you have, the better.

Part 1: What to Track?

The first step in this whole process is figuring out the setup you want to track and any criteria that may go along with it. What area do you want to focus on? Do you already have an idea of some set "Rules" that you may have for this setup? Or are you just starting fresh and seeing what you can discover?

We will be tracking afternoon breakouts on listed stocks. Obviously, there are many stocks in the market that have afternoon breakouts every day. I choose some very specific criteria to help narrow the scope and, hopefully, focus me in on the best opportunities. Here are the criteria that matter to me:
  • % Change >= 10%
    • Reasoning: I want to buy afternoon breakouts for stocks that are already up STRONGLY on the day. Also, if the stock is up 10%+ already, that means there is volatility. I'm not interested in stocks that will break out and only move a couple percent at most because they have no intraday range
    • Method: I use a market scanner to find stocks that meet this criteria
  • Well above-average trading volume
    • Reasoning: I want a stock that is clearly drawing more interest than usual
    • Method: Either a scanner filter, or I just look at the daily volume on a one-year chart to get an idea of how today compares
  • At least one hour of consolidation from previous high
    • Reasoning: The stock needs time to set up for the next leg up
    • Method: I look at intraday charts to determine this; there isn't a scanner filter that I know of
  • Breakout after 2:30 EST
    • Reasoning: These are "afternoon" breakouts after all, and in my experience, later afternoon is more reliable
    • Method: Look at a clock
  • No Key Resistance Levels Close Overhead
    • Reasoning: I don't want to buy an afternoon breakout if there's a major resistance level nearby that could stuff it
    • Method: Look at a daily chart - see if there are any significant overhead levels nearby
It's very important to note that just because the above criteria are what I use, that doesn't mean it's the "right" way. You could have different ideas of what you're looking for, and you can adjust your criteria to fit with your goals. For example, maybe you want to track breakouts after 1:00 EST. That's absolutely fine! Track what is right for YOU from setup to setup; you can always adjust as you go. That being said, I don't recommend using hindsight to "data-mine" and make the results look good. Forward tracking is the best way to see if a setup is working, not adding/removing criteria from previous data to find what was successful in hindsight.

Part 2: Tracking Results

We now know what the criteria are for a stock to make our "Afternoon Breakout" list. So the next question we have to ask ourselves is, what are the results? Did the breakout succeed or fail? What factors determine this? Well, let's think about what would matter to us if we were in the trade. Here are some results that I DEFINITELY would want to track:
  • After the breakout occurred, what was the low?
    • Reasoning: I want to get an idea of how often the stock dips below the breakout point and how severe that dip might be
  • After the breakout occurred, what was the high?
    • Reasoning: I want to know how far the stock ran after the breakout, which should have been an important catalyst.
  • Where did the stock close?
    • Reasoning: I want to know how often these close ABOVE breakout levels.
  • Where did the stock open the next morning?
    • Reasoning: I want to know if the stock gapped up or down. How often and how strong these tend to gap up will influence my decision as to whether I want to hold overnight or not
  • What were other key price points the following day?
    • Reasoning: Next day highs and lows will help give me an idea of how well afternoon breakouts run into the next day
Below is an image of what your tracking page might look like:


Part 3: Putting it All Together

For the sake of this example, I'm going to use some old data to fill in the spreadsheet and give you an idea of how everything comes together. First, here is an image with only the basic data filled in, the information that you would manually input at the end of the day based off of the chart:


Now this is where this post gets a bit tricky. I could get into all of the formulas I use, but I don't want to turn this into a lesson on Excel. I think the best solution is to post a link to this spreadsheet so you can see for yourselves how the rest of the sheet fills out and the formulas I use to gather specific data. Feel free to ask questions in the comments section if something is unclear and I'll do my best to address it. Here is the link to view my sample spreadsheet.



Monday, November 3, 2014

A New Promoter With Possible Ties to "Awesome Penny Stocks"

Ever since I actively began trading stock promotions on the OTC market, I have made it my mission to know which promoters are worth following. In my early days of trading, there were plenty to choose from - Awesome Penny Stocks, Pennypic, Best Damn Penny Stocks, Stock Market Authority, and Bull Exchange leading the way. Unfortunately, within the last two years many of these promoters have died out, leaving us with Stock Tips as the only promoter that could generate volume and move stocks. Despite the dying OTC market, I've continued to track promoters hoping that a new one would surface and make things a bit more active again. While there is still a long way to go until I'd consider this promoter "Effective," I believe I've found a group worth monitoring as they could very well be connected to some former "Awesome Penny Stocks" promoters.

One of the methods I use to find promoters is simple enough - I use various search engines and input keywords such as "Hot Penny Stocks" to see which promoters are spending money on advertising their brand. Below is an image of a Google search. Mote the ads at the top and on the side of the page:


Every time I see a new website advertising, I sign up to it in a throw-away email account. That way, if my stock scanner ever finds an inexplicably active OTC stock, I can simply search my email to see if one of these promoters is sending out emails on it. Even better, I can see which sites are emailing on the same ticker to figure out which sites may be connected.

Around the end of August, I saw the first of a few unfamiliar websites starting to advertise. As usual, I signed up to the sites and simply waited for the emails to start arriving. Today, I received the first pick from many of these sites, GLRKF. Through a combination of searching my email, and running reverse IP domain checks (another good way to find connected websites), I compiled the following list of websites that I believe to be the same promoter behind GLRKF:

finestpennystocks.com
smartstockchoices.com
thebestofthemarket.com
stocksthatsoar.com
smartstockwinners.com
mysoaringpennystocks.com
bestamericanstocks.com
stocktipmagazine.com
elitepennystock.com
elitespennystock.com
wallstmagazine.com
qualitypennystocks.com
pennystockrepublic.com
stockstrategysecrets.com
equitiesthatsoar.com
poisedtosoar.com

So on to the question that I'm sure many of you are asking - why do I think these websites have ties to Awesome Penny Stocks? Well, here are a few factors:

  • Their aggressive advertising of some of these websites reminds me of the way some APS sites used to advertise.
  • GLRKF was promoted back in June by APS-connected website pennystocks.com (now offline)
  • qualitypennystocks.com is a domain that used to be connected to APS (Although this could be coincidence as ownership could have changed hands.)
  • elitepennystock.com started emailing about GLRKF on 10/27/2014. They spammed every single one of my email addresses that I had registered to APS sites, meaning they likely obtained their mailing list from an old APS list. 
  • pennystocks.de just started promoting GLRKF last week on the German market. For those of you who are not familiar with this site, it is an old APS site that pumped some of their former picks such as TAGG, SWVI, and others to the German markets. So it is very likely that whoever controls pennystocks.de is also involved with these new websites.
So does this mean that Awesome Penny Stocks is back??? Not so fast. Even if these websites are connected, that doesn't necessarily mean that we can expect promotions even close to comparable to what Awesome Penny Stocks was capable of in their prime. By the time they retired and took (most of) their remaining sites offline, they were already a shell of their former selves. Here is a great article on Promotion Stock Secrets about the end of Awesome Penny Stocks, and it's extremely unlikely that any of the masterminds behind the original site are still involved due to their various legal troubles. 

The question becomes who took over, and how effective can they be? Just as Stock Tips became stronger with each of their picks (until the PGFY halt), these new websites have the opportunity to build their brand and do the same thing. I, for one, will not be trading GLRKF or any of their future picks until they have proven themselves first. Currently, GLRKF volume is pathetic and barely tradeable anyway, which makes sense since few people would want to buy a stock being pushed by a new and unknown promoter. 

If GLRKF can be a multiday success and trade decent volume, we may see increased interest in the next pick from this group. If they put out several duds in a row, it's unlikely that this promoter amounts to much, at least in the near future. Whether or not we have a new major promoter, only time will tell.

Wednesday, October 22, 2014

Lessons From My $290,000 $LAKE Loss

I realize I'm getting a bit behind on blog posts, and I know I still owe many of you a breakdown of how I made the spreadsheets that I mentioned in my Vegas presentation this year! However, after an unplanned wild two weeks of trading that took up most of my time and energy, I decided that a post about my losses was a much higher priority.

Before we get into some of the specific mistakes I made with LAKE, we need to examine the underlying problem. This underlying problem was present in my trading all summer, ever since I started transitioning over to listed stocks. What was this problem? My unwillingness to cut losses when I shorted momentum runners too early. Just take a look at these two tweets of mine from July:



As far back as July, I knew that I was playing with fire. I even went so far as to predict that my stubbornness would badly burn me eventually. Yet despite knowing this, I refused to make a change. I'm not sure whether it was due to pride, fear of exiting at the top of a spike, or perhaps just the thrill of turning a loser into a winner. Whatever it was, the problem only got worse. Here are a couple of trades from my profitly that don't look too bad on paper, but there was far more to the story:


While on paper this looks like a solid GPRO gain, the reality is that at one point I was down over $50,000 on the trade. 


Similar to GPRO, this RADA loss doesn't look like anything too unusual. However, the reality is that at one point I was down over $90,000 on this trade.

These are just two examples, but I know there were far more uncomfortable situations that I held through. In fact, RADA might have been one of the only ones that didn't turn out to be a profit for me. While in the back of my mind I kept thinking, "Eventually this won't work out," my bad habit kept being rewarded with narrow escapes and sometimes even solid profits. I knew my trading style was broken, but the results never showed it. In fact, I was even rewarded with my most profitable trading month ever in September! I continued to play larger and larger as the gains poured in, refusing to address the underlying issue. Then LAKE came along, and the wheels came off. 

My LAKE trade started off well enough; I had shorted 10,000 shares at about a $9.90 average, and I was pleased with the price action. It appeared to be fading, and I believed I would be able to cover in the low $9s or high $8s. Below, you can see the complete intraday chart:


As I was watching LAKE attempt to crack the low of the day, I was feeling VERY good about my short. I was already up over $3000; it was just a question of when to take profits. Then, a press release came out. I don't remember the specifics. All I remember is that very quickly my $3000+ gain was back to break-even. This upset me - I wanted those profits! I also didn't want to cover into the top of a spike, I was hoping that the spike would quickly top out and we'd get back to the weak price action that I had just seen. However, as the day wore on, it became clear that LAKE was not going to slow down. My one-time profitable position was now down badly, so I figured I'd just go for a ride, like I had so many times before the last few months. I could always average up, and how bad could it get? At the close of the day, I was down roughly $16,000 unrealized. 

The next morning LAKE was gapping up, and although I was annoyed, I welcomed the chance to add more size higher and get my average up. I knew I had gotten stubborn with my original position. When adding to a loser, I always tell myself not to get stubborn with the adds too. For whatever reason, I failed to heed my own advice in this case. 30 minutes into the day, I was already trying to average up into the spike to $13. There was a brief pullback, but then the stock ripped right back. I now had 20,000 shares from an $11.50ish average, and I failed to downsize when my mid-$13s risk level broke:


At this point, I was getting uncomfortable; but I still had room to add, and I was going to use it! I just had to be more careful. LAKE started to look heavy to me as the $16 area topped, so I threw in another add. This time, I believe it was roughly 20,000 shares in the high $15s, bringing my total position to 40,000 shares. LAKE tested $15 a few times, and I kept waiting and praying for it to break down, yet the snap never came. After holding $15 for a second time, LAKE ripped through the $16 resistance area, which I AGAIN failed to cover into. Suddenly, the stock was over $18, and I was sitting on my worst unrealized loss ever. 

A couple of hours of consolidation later, and I still had all my shares. LAKE had pulled back to $16, but it had failed to break down any further. I could have downsized into this pullback, but I remained stubborn. I wanted a bigger move so that my damage would be less! I was thinking about my money, not about what the chart was telling me. When LAKE perked back through $17, that's when I began to get scared. I realized how out of control the loss could get if I stayed stubborn and LAKE kept ripping into the afternoon. So I took off all my adds into the strength, somewhere around $18. Once the adds were covered, the damage JUST from the adds was roughly $100,000. I was left sitting with my 10,000 shares from $9.90, which was still down another unrealized $80,000. I had opened myself up to losses I had never experienced before because of the massive size I forced myself to play to try to fix a bad situation.

While financially this wasn't crippling to my account, it was mentally disastrous for me. Taking the size off did allow me to attack again the next morning, and I was bound and determined to NAIL it with size to make back my losses, and then some:


I actually had a decent short right out of the gate, 25,000 shares at $20.50. Within 30 minutes, I was up well over $50,000 unrealized. But it wasn't good enough. I didn't lock these gains in, rather, sitting on my short all day trying to mentally will it into breaking down. The snap never came, and my one-time $50,000+ unrealized profit turned into less than a $10,000 gain by the time I locked it in. The next day, I tried again: 


All morning I fought the stock with large positions, making emotional shorts into weakness and covers into strength. I probably was playing 20,000-30,000 share positions at a time, all the while still holding my original 10,000 shares from $9.90. Mentally, I was toast. I had gotten so far away from my typical trading that what I was doing now was hardly recognizable. The results showed that, I tacked on an additional $75,000+ in losses. The one silver lining in all of this was that I cut ALL of my losses once LAKE began to break out past $22.50ish. Had I held through this spike, my losses would have probably doubled. However, the damage was done. My $9.90 position became a realized $120,000 loss. 

The next day, LAKE finally had a meaningful pullback. But at this point I was so mentally defeated and exhausted, I think I only played 5000 shares and made a couple dollars per share on the trade. The end result of all of my LAKE trading came out to $290,000 in damage:


For all of the times my stubborn trades had worked out, LAKE gave all those profits back, and then some. The amazing thing about trading is that you can be right (or get lucky) 99 times out of 100, but it only takes that one time to wipe you out. Staying stubborn in losses is the easiest way to open yourself up to a HUGE level of risk, and I must force myself into discipline to make sure this NEVER happens again. Protecting your account is far more important that avoiding a small loss for the sake of your pride.

My stubbornness affected me elsewhere too. I was trading size on other positions, in setups I normally wouldn't even play. I lost just under $40,000 on an impulsive SIMH long (which I failed to cut the loss quickly on), and after making back some of my losses on a well-timed short on VSR, I gave back all of the gains on yet another stubborn loss on IBIO. 

October will go down in the books as my first losing month since I started trading full time, and I FULLY deserve it. While I could stick around and battle the next two weeks, I must not lose sight of the big picture. 2014 has been an INCREDIBLE year for me so far, and even after this month of losses I am still up over one million dollars for the year. To push for a break-even or better month when I know I'm not mentally right would do nothing more than put more of those gains in jeopardy, and I refuse to do that. So I will take a much needed break from trading, my first vacation in quite awhile, and I will come back refreshed in November for a fresh start! 

Monday, October 6, 2014

My 2014 and 2013 Vegas Presentation Slides

Let me start by thanking everyone who made it out to Vegas for the stock conferences, both this year and last. I can't tell you all how great it is to meet people face to face, and how energized I feel when I leave Vegas every year after meeting so many passionate traders! It really makes me feel fortunate to be a part of such a great trading community, and I hope you all took a lot away from the experience.

I had a few people asking if I could post my presentation from this year, so here it is! Just follow the link and you can see all of my slides. I'm also going to put up a link for my 2013 presentation, as I feel there's a ton of great content in there to learn from as well. I hope you guys enjoy, and thanks again for your dedication and for all of the positive feedback I've received!

2013 Presentation

2014 Presentation

Tuesday, September 30, 2014

Trade Recap: SPEX Afternoon Breakout

For those of you who read my last blog post, you saw that a Nasdaq long setup I used to frequently play was afternoon breakouts. A shift in my focus, as well as a nasty GENE loss (which I fully deserved for breaking rules), kept me from playing these for awhile. To recap, here's the criteria I look for in order to make a play:

  1. WELL above average volume
  2. At least one hour of consolidation
  3. Breakout occurs after 2:30 eastern
  4. No major multiday resistance near the breakout level
Today I was pleased to see a breakout opportunity set up with former runner SPEX. Coming into today, here is what SPEX's daily chart looked like:


You can see that most days trade very little volume, but back in May it had a huge two-day run with MUCH heavier volume. This morning, SPEX quickly had a morning spike to a high of $1.38 on increased volume, then pulled back and consolidated for most of the day:


I saw the chart consolidating and holding, however, I chose not to buy in anticipation of the breakout as trades like that are too much of a gamble for me. I prefer to wait for the breakout to actually occur. According to my rules, I needed the breakout to occur after 2:30 eastern as well. 


At 2:47, I got the breakout I was waiting for. Over the next ten minutes I accumulated 35,000 shares long from a $1.377 average, right around the breakout area. You can see that the breakout didn't hold perfectly, and the stock briefly dipped below $1.38. That didn't bother me. In my experience, this is not at all uncommon, and breakout levels rarely act perfectly as support. I would have become concerned if the stock had dipped more severely, perhaps below $1.30. 

I began selling my shares into the close and continued to sell them after hours. As of writing this, I have about 5700 left long. I think SPEX could very possibly gap up. However, I prefer not to have any overnight risk, especially on the long side, where I'm less comfortable trading. In my opinion afternoon breakouts are a high-odds, low-risk setup, and I will continue to look to trade them in the future.

Thursday, August 21, 2014

Analyzing My Worst Loss Yet

Hold and hope is not a strategy. I honestly have lost count of how many times I've told people this, yet it is the very situation I allowed myself to fall into earlier this year. The end result was this nasty $60,000+ loss:


Early in 2014, I was just beginning to trade listed stocks a bit more actively, and the setup that I decided to focus on was buying afternoon breakouts. I had a clear set of criteria for what I was looking for: I wanted the breakout to occur after 2:30, I wanted the stock to be trading well above its average volume, and I wanted the stock to have had at least one hour of consolidation since its last high. Below are a few examples that demonstrate the action that I was looking for:




On February 13, 2014, I believed that I found a similar setup in the making. The ticker was GENE, and it had a very strong morning, spiking to a high of $2.36 (twice) and then consolidating. Below is an image of what the intraday chart looked like by 12:30:


The setup looked great. All I had to do was wait for a breakout to occur after 2:30, like my rules dictated. There was only one problem - I wasn't going to be in front of my computer for most of the afternoon, because I was planning to spend it with someone very special:


Despite being in the middle of one of my best months ever, for some reason I REALLY didn't want to miss this play. So I made an impulse decision to put in a "Stop-Limit" buy order right before I left. I set the price range for my order from $2.37-$2.39. For those of you who are not familiar with this type of order, it meant that if GENE hit $2.37 (the new day high), my buy order would become active and purchase shares up to a limit of $2.39. As if one impulse decision wasn't bad enough, I made a second one. I decided to put in 40,000 shares for my order, a HUGE position size for me at the time. Even now, I don't think I ever play listed stocks this large. Once my orders were in, I walked away and went for a ride:


While I was off having fun, GENE's pattern was playing out. Since I had entered automatic orders before I left, I had very little control over WHEN they executed. My rules dictated that it had to be a late afternoon breakout because I had seen many early day breakout attempts fail. When I put my orders in, I HOPED that GENE wouldn't make its move until 2:30 or later. Unfortunately, this did not turn out to be the case. GENE tried to break out at 1:09, was quickly stuffed, and I was now long 40,000 shares in a stock setup that did not at all fit my criteria.

I do not recall exactly what time I returned home, but I know that it was before the market closed. By now GENE had faded under $2.10, and I had been down well over $10,000 unrealized on my position. GENE was bouncing a bit into the $2.20s again, and I decided that I should try to downsize into the bounce. Unfortunately, only about 2000 shares executed, and the stock began to fade again.

It was here that I got stubborn. I did not want to admit defeat and take a five-figure loss. I rationalized, "GENE is still up on the day! It could easily gap up and run more tomorrow!" So I took my 38,000 shares from $2.38ish overnight and decided to hope for the best the next morning, despite the weak close. Here is what GENE looked like at the end of the day:


The following morning, GENE did not offer any relief. The stock gapped down and never could break any higher than $2.05.


It spent most of the day in the $1.90s, and I knew that I was looking at about a $20,000 loss if I chose to cut it. Once again, I let my potential unrealized loss make my decision instead of what the price action was telling me. I looked at the daily chart up to that point and tried to form a plan:


My plan turned into one of "hold and hope." I HOPED that GENE's daily consolidation would form a higher base than the previous low. I HOPED that there would be another press release of some sort that would spike the stock back towards $2.50 so I could take a smaller loss. I never once formed a plan for what I would do if the stock just continued to fade. During these past six months, I just sat and waited for that spike I HOPED I would get to minimize the damage. Instead, I got this:


In hindsight, I probably should have cut the loss when GENE broke below the 52-week lows of $1.30ish. Unfortunately, all I could hear in my head was, "But that will be a $40,000+ loss!" So I kept waiting for some sort of spike. The closest thing I got was a press release and spike on July 7 back to $1.30, which, unsurprisingly, acted as resistance. I once again failed to cut the loss or even downsize. Only when GENE finally broke the new 52 week support of $1.00ish did I decide enough was enough, and I slowly cut my loss into the ensuing fade.

While I made mistake after mistake on this trade, I did do one thing well. I didn't average down. While this loss is my largest to date, it certainly wasn't catastrophic to my account. Where many traders blow up is by continuing to add to their failing position, all the way down to zero. Had I tried averaging down into this with the thought that it couldn't possibly go any lower, my loss almost certainly would have been twice as bad, if not worse.

It is okay to be wrong sometimes, and it is okay to make mistakes. What separates the successful traders/investors from the unsuccessful ones is their ability to learn from them. Don't sweep your mistakes under the rug and forget about them - analyze them and learn from them. The lesson here? Don't ride horses during trading hours.

Saturday, July 5, 2014

6/27/14 WSTI Short Trade Recap

As some of you may have noticed, recently I've been taking some time off from blogging, in part due to the OTC market being so slow. However, I've received a few questions about my WSTI short and thought that it might be beneficial to do a trade recap.

The Setup:

Let's begin by examining the daily chart entering the day:


When examining this chart, here were my initial observations:

     - 6/19/14 was the first day of significant volume; therefore, I consider that the start of the promotion. The chart action prior to that is irrelevant to me due to the low volume.

     - Every single day since the beginning of the promotion, the stock closed green; therefore, I consider this an overextended stock that should collapse hard when it finally cracks. It helps that it is a known promotion.

     - 6/23/14 the stock went significantly red, yet it managed to recover and close near highs. The next day it broke out past $1.55.

     - Every day following the breakout, the stock has gone red, yet it recovered to close green. This tells me that a g/r move may not be what triggers a total collapse.

Normally when I'm looking at an overextended daily chart, I'm looking for large morning spikes to short into or a g/r move to signal a trend break and impending collapse. As noted above, in this case I believed that g/r would not trigger the collapse, that it would take a different sort of trend break. During the previous trading day, WSTI had a very strong open before a negative seeking alpha article was published, causing the stock to pull back.


WSTI pulled back to about $1.80 because of the negative article before quickly recovering. Since the daily chart had produced higher lows every day since the breakout, and $1.80ish had acted as the bottom of the panic after the negative article, my theory was that $1.80 could act as the trend break that would lead to total collapse.

Morning Action:

Unfortunately, WSTI shares to short were very difficult to come by. Up until the previous day, they had been impossible to find. My favorite broker for OTC stocks, Centerpoint, briefly had shares to locate of WSTI the morning of the 27th. I decided to pay the locate fee of $.05/share for 10,000 shares, because I knew there was massive downside potential if the stock collapsed, and I didn't want to be without shares if a shorting opportunity presented itself. 


WSTI gapped up to $2.17, and after a quick pullback to $2.12, it managed to spike up to $2.25 before running into resistance. I was definitely watching the spike for a short opportunity, but ultimately I decided that it hadn't spiked high enough for me to short into the strength. After a brief period of consolidation, WSTI began to crack its $2.12 low of the day. I decided to take this opportunity to initiate my short position and wound up with roughly a $2.11 average. But why did I short here? It wasn't into a spike, and it wasn't on the $1.80 breakdown level I thought might be key. There were a couple of reasons:

  1. The low-of-day crack was still a very bearish move. I expected there to be SOME pullback at least, and if the stock looked like it would hold up, I could just close my position for a small gain or loss.
  2. 10,000 shares is not a large position size for me. If I were to stay patient/stubborn with my position, I knew I could always locate additional shares the next morning and look for a spike to add into short.
I watched the stock bounce slightly after the pullback to $2.00 and knew that ultimately I wanted to use the morning high of $2.25 as my risk level. If WSTI had started to perk up and look like it might break past that high, I would have probably cut my loss and tried again later into a spike. The $2.12 support level began to act as resistance instead, though, and after failing to break through WSTI faded back again.


The rest of the day, WSTI turned into a slow and steady fader. While there were small bounces along the way, there was never any action to indicate that the trend was reversing. Once WSTI broke below $1.80, I knew the stock was toast and should continue to fade. The chart was broken. I would have added to my short on the $1.80 crack, however, I was unable to find additional shares. I considered covering some of my short into the fade, but since it was going to be the first red day for WSTI, I thought there were decent odds that there would be additional washout the next morning.

The Cover:


Monday morning WSTI had a pretty large gap down, from $1.35 to $1.14. I already thought this was a rather large move down, and upon reading the level 2 I thought I saw bottoming action right out of the gate so I quickly covered up my position at $1.11. The level 2 action turned out to be a fake bottom, but I had no regrets locking in my profits as I had played it safe and hadn't opened myself up to potentially getting caught short into a large bounce. 

WSTI had fallen 50% off of its highs in one trading day, which was more than good enough for me. Had there been a large bounce at some point, I would have definitely considered a reshort. I never quite got the price action I was looking for though, so I simply moved on to a new stock because the play was over! 

Thursday, May 8, 2014

Question: "How Does Your Strategy Change in a Bear Market?"

"Sell in May and go away" is an expression commonly heard in trading circles. Veteran traders know that the summer can tend to be slower, especially in the OTC market. The first few months of 2014 were the craziest three months of trading in the OTC market I have experienced since I began trading. I couldn't believe the number of plays we had on a daily basis, and it seemed that every time one died, another would immediately surface. Finally, we are beginning to see action slow down, and many traders are left wondering what to do.

I have been asked a number of times about how my strategy changes as the market shifts. To be completely honest, my strategy barely changes at all. If anything, I become slightly more short-biased, but this really only applies if it is a very bearish market. However, I am still watching the same chart patterns, I am still looking for the same setups, I continue to take the same approach as I would on any other day.

There are far fewer runners right now than there were in early 2014. All this means is that I must be more selective as a trader. I don't find different setups to play to keep myself entertained. If there's no setup, then there simply is no play. It is perfectly fine to go a day or more without even making a trade if the setups that you're comfortable with don't present themselves.

The natural question you might be left with is, "If I don't trade as much, won't my profit rate decline?" Unless there are a couple of truly spectacular setups in a slow month, yes, this will be the case. Trading does not provide a steady monthly salary. Some months will be great, some months will be a bit slower. The key to making it as a trader is remaining consistently profitable. Every day, no matter what kind of market we're in, I play the same chart setups I've been playing for the past two and a half years. As a result, I have never had a losing month and very rarely even have a losing week. I survive market slowdowns/downturns because I focus ONLY on the patterns that work for me, even when there are very few of them in the market.

I hope this helps clear up any confusion!

Saturday, April 26, 2014

Question: "Which Broker is Best for Me?"

Before reading any further, please take a moment to review my first post on brokers. I will do my best to update this post anytime there is a significant change.

I am often asked by new traders to give my opinion on which broker would be the best fit for them given their circumstances. Since I can't take the time to reply to all of these questions individually, I thought that I would rank brokers I have used based on certain criteria. Of course, this is all my opinion only. Keep in mind this only covers brokers I have experience with; there may be other options out there. If you don't see a broker on this list, you'll have to try it for yourself, because I will have no opinion on it.


Brokers I Would Use for Short Selling:
1. Centerpoint Securities
2. Interactive Brokers
3. Speedtrader

If you want locates, these are the only brokers that will be able to get them for you. By far, Centerpoint has the best borrows - it isn't even close. Even if a stock isn't easy to borrow there at the start of the day, there are other ways to get a locate on it. To short-sell pump and dumps, these are the only three brokers I would consider.

Brokers I Would Use for OTC Executions:
1. Centerpoint Securities
2. Speedtrader
3. Etrade
4. Interactive Brokers

Speedtrader recovered most of their OTC routes, and they added CDEL to their list which is a huge help. Centerpoint has the best executions, mostly because I feel their NITE route offers better executions than Speedtrader's. They also offer routing options to CSTI, ATDF, CDEL, ARCA, and a few others. Etrade won't let you pick specific routes, so that definitely limits your ability to get a fill sometimes.

Brokers I Would Use for Trading Cheap Stocks:
1. Etrade
2. Speedtrader
3. Interactive Brokers

If you want to trade sub-penny stocks or anything even remotely cheap, you need a broker that won't eat you alive with routing fees and commissions. Speedtrader and Etrade don't charge on a per-share basis for their routes, which helps keeps fees cheap and under control. Centerpoint does charge per-share though, so fees add up VERY quickly on the cheaper stocks you need to trade large amounts of shares with. Interactive Brokers makes this list because their commission structure is .005/share OR 0.5% of total trade value, whichever is cheaper. At the end of the day, they will also be a cheaper option than Centerpoint.


Please let me know if there are additional categories you'd like to see me break down. I will also do my best to update this post as I gain experience with new brokers. Hope this helps!

Tuesday, April 22, 2014

Trade Recap: GNKOQ Afternoon Breakout

Afternoon breakouts are one of my favorite long setups, and today GNKOQ gave us a perfect example of one. GNKOQ was trading on the OTC exchange for the first time ever, as it had finally delisted after its bankruptcy.


GNKOQ opened with a strong morning spike, then spent much of the day consolidating. I included the chart above because I believe it is important for people to get an idea of what the chart looks like BEFORE the move happens. I believe it was around midday that I really started watching GNKOQ, because I thought that after a lengthy period of consolidation, the stock could spike nicely if it broke out past its morning high. I prefer breakouts in the afternoon, so I was in no rush for GNKOQ to make its move. Finally, about 20 minutes before close, it made the move I was looking for.


GNKOQ perked up around 3:40, breaking past the morning high of $1.78. Unfortunately, I had my eye on something else at the time and was a bit slow to act, missing the initial break. This is where a lot of traders will get frustrated with trading OTC stocks. Even if you're quick with your buy order, you will find, in most cases, that it is tough to get an execution into strength. Just because I missed the breakout move didn't mean that the play was over, though. 


I am including the zoomed-in chart above because I want you all to notice something. After GNKOQ broke $1.78, it quickly spiked to $1.84. However, GNKOQ then ran into a bit of trouble and had a pullback to $1.80. Some traders would get spooked in this situation and sell because the stock started to dip. However, I take the opposite approach. I believe pullbacks and consolidation are healthy. If I would have been willing to buy the stock at $1.80 on the way up, why wouldn't I be willing to buy it at $1.80 here on the pullback just a few minutes later? It is this first pullback after a breakout where I find myself buying time and time again, especially in afternoon situations. In this case, I wound up buying 10,000 shares of GNKOQ at $1.80. Had the stock dipped further, I would have added to my position. After a long day of consolidation, my risk level was $1.70. 


GNKOQ wound up having a fantastic breakout move, pushing all the way up to $1.96 before pulling back slightly into the close. I sold about 3000 of my shares at $1.93, and I'm taking the rest overnight, looking for a morning gap-up and spike. In the morning, I will either sell my shares into a spike or if the stock looks like it will go g/r. 

So here are a few key things to take away from this post:

1. I prefer afternoon breakouts and usually wait for the breakout to happen before buying.
2. I don't chase spikes if I miss my fill; I wait for pullbacks. 
3. If a move exceeds my expectations, I will usually lock in some profits.

Wednesday, April 9, 2014

Question: "Will You Give Me Your Full List of Promoters?"

Sorry, but this is no longer something I'm going to provide. I'm barely staying on top of it myself. A lot of the information in my current spreadsheet is outdated (which many of you have noticed). A large part of the reason for this is because, recently, I find myself trading off of stock scanners more than anything.

There are very few effective promoters out there right now, so don't worry, you're not missing much. Stocktips remains my favorite promoter to play. I will continue to scalp their picks when new alerts go out. They're the closest thing right now to a replacement for Awesome Penny Stocks. It is important that I note that their "premium" paid service is scam, do not pay them because you will not get picks early! Should any other promoters surface, I will be sure to keep everyone posted!

Question: "How Should Small Accounts Avoid the PDT Rule?"

There's no denying that the pattern daytrader rule causes huge frustration for many new traders. I often get questions about how to best deal with this rule. While I can't advise you on what decision you should make, I can outline the route that I took when I first started:
  • Open Multiple US Accounts
In the US, you are limited to three daytrades every five business days. If there are certain US brokers that you have your heart set on, one option is to open multiple accounts. That way, you get three daytrades at each broker. This is the strategy I used when I first started. I had accounts at ThinkorSwim, Speedtrader, and Interactive Brokers. Interactive Brokers does have a $10,000 minimum to open the account, but once it is opened, you can immediately pull most of that money if you so choose. There is no minimum balance requirement to my knowledge. By using three brokers, I got nine daytrades every five business days. Once I reached a total of $25,000, I chose which broker I was happiest with (at the time it was Speedtrader) and merged all of my money into that account.

I will not tell you which option is best for you. This is an example of something that is best to learn for yourself. I believe both can be good options, though, so take a shot with one of them - and if it's not working, don't be afraid to change it up! 

Saturday, April 5, 2014

Why I'm Concerned for the #Wolfpack

Before I receive dozens of angry emails, let me start by saying that this post is not meant to bash the latest twitter sensation, "WolfOfWeedSt." In fact, I've been quite impressed by some of his picks so far and how much they've run from where he initially called them. What concerns me is the cult-like mentality that has taken hold of this "Wolf-pack," because I've seen it far too many times and know it's just a matter of time until the bubble bursts.

The Wolf recently received quite a bit of publicity, as he was featured in this BBC article about Weed stocks. In this article the Wolf says, "I've started to treat the whole sector like a giant game of Frogger, I ride the wave and then jump." So why are so many of his followers obsessing about company fundamentals as if these are long-term investments? I also am curious as to why so many #wolfpack members seem quick to ignore where this wave of momentum comes from in the first place.

I have to give credit where credit is due - FRTD offered a fantastic spike yesterday upon announcement:


Let the chart tell the story. I think it's obvious what time the tweet about FRTD went out. In the first ten minutes after FRTD was mentioned, it traded roughly 30 million shares and skyrocketed from $0.041 to $0.075, an 83% move. FRTD didn't spike because it suddenly had better fundamentals or a better long-term outlook - it spiked because someone with a large following tweeted about it. Am I complaining? Absolutely not! Spikes like this are what I used to love to play with promoters like "Awesome Penny Stocks." Most of the time, when you see quick spikes in the OTC market, it is on light volume and very hard to take advantage of. The FRTD move happened on SIGNIFICANT volume, and I know that I plan to buy any future "WolfOfWeedSt" announcements for quick flips until he loses his flow. That is the predictable part of the trade.

So why am I concerned for the #wolfpack? Because there seems to be a mass delusion out there that these Wolf picks are going to be the next big thing. I suppose I can't say with certainty that they won't be. Unfortunately, the reality of the situation is that if you're investing longer term in OTC stocks, you're playing a game in which the odds are massively stacked against you. Take the time to review this study if you don't believe me. Here are a few of the major highlights you'll find within:

  • The mean return for native OTC stocks over one year is -33.82%
  • The median return for native OTC stocks over one year is -53.9%
  • 75% of native OTC stocks declined by 13.97% or more in one year

(A native OTC stock is one that has never traded on a major exchange.)

Take the time to read the entire study and you'll see there's plenty more where this comes from. No matter how you break it down, the vast majority of OTC stocks fail in the long run.

In addition to the overwhelming odds facing long term OTC holds, there are dozens of #wolfpack tweets that are just flat out sickening to look at. If a stock goes down, of course the consensus is that short sellers are attacking it. This is a laughable claim, especially for stocks like $MINE, where the $2.50 rule would make it impossible for shorts to take any kind of meaningful position size. Or sometimes you just see disgusting tweets (and retweets) like the one below:
Yes, this is just your typical promoter BS used to suck in newbies. Of course the chart usually tells the story, and some of the earlier "picks" are starting to look like your classic pump and dump pattern:



There's no denying that both of these picks had considerable upside from the time of their announcement. Perhaps one or both of these can even offer another breakout before the hype is over. If I had a position in either of these stocks though, I'd be asking myself two things:
  1. At what price did the "Wolf" and the other #wolfpack leaders buy their shares?
  2. How much did I pay for my shares?
It doesn't matter how quickly I react, I'm willing to bet I will wind up paying a higher price every time. I would never convince myself to hold and hope from higher prices, especially after momentum starts to break. I certainly hope nobody reading this ever will either. 

I will continue to treat "WolfOfWeedSt" like I treat anything else on the OTC market - I will trade based off of the chart alone. I love the volume and volatility he brings to the market, and I plan to actively trade his picks, both long and short, as long as I see a high-odds setup to do so. Like the Wolf, I will "ride the wave." I just hope my readers won't be some of the #wolfpack members that will still be riding long after the wave has crashed.

Disclosure:

I am not, nor have I ever been, short MINE, SPLI or FRTD

Monday, March 24, 2014

Question: "Why do you prefer trading OTC Stocks?"

There are two main reasons why I prefer trading OTC and Pinksheet stocks over stocks that trade on the major exchanges:

1.The Level 2 Advantage

Most OTC market makers do not offer instant executions. This creates the stacking action from market makers in level 2 that I love to analyze and makes it much easier to time exact tops/bottoms during volatile periods. You can see further examples of what I'm talking about in my level 2 posts. Listed stocks have instant executions, so you do not get the same advantage from level 2.

2. Chart Patterns are More Reliable

I have found that OTC stocks trade based off chart technicals far more than any kind of fundamentals. Perhaps this is because most OTC stocks are garbage and have no fundamentals at all. Also, the overall market tends not to affect the patterns. The tweet below from Modern Rock sums it up best:


Of course there are challenges with OTC stocks as well, such as getting executions or finding shares to short. This is why it's important for you to have the right broker(s) if you're going to trade them. (Which broker will best fit your style is up to you, so please don't ask me.)

I hope this clears up any confusion about why I prefer OTC stocks. Remember that this is just a personal preference - do not interpret this as a statement saying OTC stocks are better to trade. What is best for you to trade depends on your personality and the strategies that have been successful for you.

Tuesday, March 18, 2014

Trade Recap: PHOT Overnight Long

I often talk about longing OTC stocks into afternoon strength and holding for the next day gap-up. When things go according to plan, it's one of the easiest trades in the world! But what happens when things go wrong? My PHOT trade from last night is a fantastic example to learn from.

The Setup:


I bought 130,000 shares of PHOT at roughly a $0.75 average shortly after 3:00 EST, as it was breaking above the high of the day. I was using the $0.70ish low from the previous pullback as my risk level, so the brief shakeout to $0.73 didn't scare me out. The stock ripped back, closed at the high of the day, and I was feeling great about my overnight hold. I thought for sure the stock would open over $0.80 and have a great morning spike.

The Result:




Before the market opened, there was a negative article released about PHOT. The stock reacted very negatively to the article, as you can see above. PHOT gapped down, opening at a price of $0.75. People have asked me before what I do when the stock gaps down instead of up. The answer is that I get out. Because it was a new day, I was no longer using the same risk level as the previous day. Since PHOT was opening red on the day and was up so much from the original breakout level of $.467 the previous week, I felt that there would be way too much risk to hold through a potential morning panic in the hopes that the stock would recover. Based on my experiences, it is pretty uncommon to see an OTC stock quickly push back to green and continue after it has gapped down.

Although PHOT gapped down, there was a moment of strength. It tried to perk up, reaching as high as $0.756 before the real collapse began. I took advantage of this brief strength to sell 80,000 of my shares. This is where I made my mistake. Since I felt content that I had decreased my position size, I decided to give the other 50,000 shares a chance just in case PHOT recovered. I ignored my knowledge that a recovery was unlikely and decided to hold and hope for a push back to green. By the time I realized the recovery was failing, it was too late. I was stuck in a panic.

The PHOT panic was very fast and violent. Despite my mistake, I did not compound it. Rather than panic and try to sell PHOT at whatever price I could, I stayed patient. I have found that when I chase panics, I usually wind up getting executed near the bottom of them. So I held through the plunge. I analyzed the level 2 action, and when PHOT bottomed at $0.625, I actually bought 120,000 shares at $0.63ish for the bounce. I didn't make it too long with my bounce position, I wound up selling it around $0.665 just to take safe gains (in case the bounce had failed). However, I kept my 50,000 shares that I held overnight and managed to stay patient with those until I finally sold in the high $0.69s. 

Trading is all about keeping yourself in predictable, comfortable situations. I failed to do this by "holding and hoping" with my last 50,000 shares. However, because I managed to avoid making any emotional decisions during this panic, I walked away with a net profit on PHOT for the day. Had I not played the bounce, I would have at least minimized my loss. 

Friday, March 7, 2014

My Least Favorite Email to Receive

Many of you will be surprised by the image I'm about to post. You probably expect to see a random newbie question or some troll mocking me for a recent loss. Instead, here is the email that makes me cringe every time it hits my inbox:


Read it closely- the details are what upset me so much. I can't stand seeing people sign up for "TimAlerts." This is not a knock against Tim Sykes, I'm a big fan of his "Pennystocking Silver" and "TimChallenge" programs. The reason I get so annoyed by people signing up for "TimAlerts" is because it's exactly what it sounds like, a trade alerts service only! If you review my posts for beginners, I state MULTIPLE times that trying to follow alerts is the wrong way to approach the stock market. You need to educate yourself, not be a blind follower. 

If you're going to pay money for a guru, please at least choose a plan where you can learn something. You're not going to make money or learn to be self-sufficient by being a sheep. Choose a plan that has video lessons, webinars, or some kind of educational content. Otherwise, the vast majority of you are just flushing your money down the drain.

Tuesday, March 4, 2014

More NVLX Level 2 Analysis

In addition to level 2 analysis, I also spend some time in this video discussing OTC routing and how I get executions.

video

Here's a link to the video if quality on the blog is bad:
https://docs.google.com/file/d/0B82U0eZh1EYQRThyaEVuYWdzanc/edit

Sunday, March 2, 2014

Question: (Insert Any Question About Taxes Here)

I will be honest, I am CLUELESS when it comes to taxes. I tried doing them by myself in 2011 when I first got started, the process took me 8 hours. Back then, I traded just a small fraction of what I trade now. You could not pay me enough to do them myself again. In 2012 I tried taking my taxes to H&R Block. I didn't know much, but I at least knew enough to know they botched them terribly.

I wound up making the switch over to a specialized trader tax service, professionals I could trust. I have to thank Michael Goode for pointing me in their direction: http://www.greencompany.com/. Here is further information from Michael Goode regarding taxes on his blog: http://www.goodetrades.com/2012/02/taxes-for-day-traders/

Now when it comes to taxes, I simply ask them what to do and follow instructions. I have no answers when it comes to tax questions, so please don't direct any my way. I suggest you get a tax professional of your own to consult, because their answers will be far better.

Wednesday, February 26, 2014

Level 2 Example: NVLX Morning Panic

Please review the NVLX setup coming into the day, which I covered in this watchlist. Hope you find the level 2 video helpful!

video

If video quality is poor, please view at this link:

https://docs.google.com/file/d/0B82U0eZh1EYQQWRxVXR6VElMOTA/edit

Watchlist for February 27, 2014

Oh my gosh, this OTC market is absolutely insane right now! It's one of those rare periods where there is almost TOO much happening to keep track of! Tomorrow I'm going to try to focus on my favorite 3-4 setups to play right out of the gate, because if I try to nail everything, I'll probably get flustered and mess it up! Please, everyone, review this post to learn how to build these watchlists yourself. I don't intend to post them very frequently! To encourage a little self-sufficiency, I'm just going to post tickers and charts tonight. See if you can anticipate what my plan with each is and the ideal play I'm looking for!

Main Watches:

FNMA:

NVLX:

PTOG:

ELTP:

ONCS:

Keeping on Radar:

WPWR:

CANN:

PHOT

MCIG


Disclosure:
Long 45,000 shares of FNMA from $4.44ish
Long 600,000 shares of PTOG from $0.0344
Long 50,000 shares of NVLX from $0.394