Saturday, February 1, 2014
Some Tips for New Traders (From Old Blog Posts)
Over the past couple of years, I've done a few guest blog posts for Tim Sykes. A few of these posts were trading tips I had developed through my experiences. Here are those tips assembled in one place:
1. Don’t Be a Sheep.
This applies not just to trading pump and dumps but to following Tim’s alerts as well. Just as you shouldn’t buy into a pump because it has a good story, you shouldn’t buy into a stock just because Tim alerts it as one of his trades. Instead, you should focus on Tim’s reasoning behind the trade. Why is this a good opportunity? Why did Tim pick the entry point that he did? Of course, if you watch Tim’s video lessons he makes after each trade or attend his webinars, these answers become much easier to identify, as he lays it all out for you. Learn the strategy, learn the reasoning; don’t blindly follow trade alerts or pump emails and buy just because someone told you to. You will not be consistently profitable with this strategy, if profitable at all.
2. Get the Right Brokers.
This one seems so obvious, yet I’m always surprised at how many people seem clueless in this area, despite how many times Tim posts it. I personally believe there are four brokers worth using. For buying pumps or OTC stocks, use either Speedtrader (USA) or (offshore - they are sister sites). I personally would only recommend if you are desperate to get around the PDT rule. I don’t think there are any other real benefits to it, although they have decent borrows. For shorting stocks, the BEST two brokers are and Centerpoint Securities. Yes, it can still be difficult to short some pumps at these brokers, but your odds are far better than anywhere else. If you want to be prepared when the best trade setups come along, having the right brokers is crucial.
3. Find Your Niche
Tim teaches a lot of different strategies, and trying to trade them all at once can be a bit overwhelming, especially when first starting. In my early months as a trader, I experimented with buying pumps, shorting pumps, trading Nasdaqs with momentum, and even buying earnings winners. I traded with small size during this time, because I didn’t want to blow up my account, but also I also wanted to figure out what strategy I was most comfortable with and what could bring me the most profit.
Ultimately, I settled on buying pumps. I was successful with this strategy because I then spent months learning everything I could about this one unique area - how to get early entries, how to best buy breakouts. I watched all of Tim’s video lessons about longing pumps - I even tracked the performance of different promoters on a spreadsheet and saved charts to refer back to later. Almost all of my trades were buying pumps from November until April, and only after buying pumps became second nature to me and I’d built up some capital did I move on to working on other strategies such as short selling. Perhaps pump and dumps won’t be your niche, but find what is and pour all of your energy into it rather than dividing your attention.
4. Cut Losses Fast
If you’re looking for a specific trading tip, this one is the most important by far. No matter what you’re trading, you have to be willing to admit you’re wrong sometimes and take a quick loss. Letting losses spiral out of control is the quickest and easiest way to take yourself out of the game, especially if you like buying pumps. You can’t worry about stupid things, like snapping a winning streak or going from being up money on the day to down. In the end, your one and only concern has to be sticking to your rules and protecting your account; because if you’re trading on a small account, all it takes is one bad mistake to wipe you out.
5. Get Level 2
I traded my first four months without a level 2 feed, and looking back on that time now I can honestly say that it was like trading blind. While it isn’t quite as helpful with Nasdaqs as it is with OTCs, it still holds quite a bit of value in my opinion. Get it, learn how to read it, and use it to your advantage.
6. TRADE SMALL EARLY
I know I somewhat covered this earlier, but I want to stress it again, as I think it’s a very important point. If you’re just starting, don’t rush into things and don’t put a ton of money on the line, looking for immediate returns. I studied video lessons for three months before I even placed my first trade with Tim’s strategy, and I still made all kinds of stupid mistakes when I was getting started. You can watch and prepare and even paper trade all you want before jumping in, but never underestimate the experience factor. You aren’t truly ready until you’ve had some time to trade for real and get some practice in. So when you get started, use small size, get the dumb mistakes out of the way, and learn the subtleties that only experience can teach you. Your trading account will thank you for it in the end.
7. Buying Pumps Early Continues to be Superior Risk/Reward:
Getting in quickly on pumps upon announcement continues to be one of my favorite strategies, as well as one of my most profitable ones.
The three trades above are all trades I made on new pump announcements. Between the three of them I made about $8,500, and I don’t think I held any of them longer than 15 minutes. One of the most important things to note with trades like this is you MUST be careful not to chase too much. If you don’t get fills, so be it. Chasing for a fill is not worth the risk of buying at the top of a spike right as the stock starts to pull back. I’m aware this strategy lost some favor among people after disastrous picks in 2012, like RAYS, VLNX, VKMD, and SLIO. This brings me to the next lesson:
8. Take Profits into Spikes!
Yes, it is always tempting to hold onto a pick in case it’s the next 1000% runner. Sometimes, by selling early, you feel like an idiot a of couple weeks later, as you could have made two or three times as much. But the importance of taking a shorter-term approach and protecting yourself is huge. While RAYS, VLNX, VKMD, and SLIO were disasters for most traders, I profited on every single one of those trades, making over $10,000 between the four. I did not suffer an account blowup like so many. I did not find myself down 30%+ wondering what had gone wrong. I locked in my profits into spiking, and I protected myself! While my January BDLF trade wasn’t necessarily one people would have been tempted to swing, I sold into spiking when the stock was still strong. I didn’t wait for it to turn around on me, because selling into weakness on these OTC’s makes it very tough to get a timely execution. I will gladly sell out of these picks early and leave potential profits on the table if it means protecting myself from disaster.
9. Breakouts Remain a Great Risk/Reward Setup
FARE gave us a fantastic opportunity early in the month, as it had a big breakout past the $.20 area and went on a nice multiday run, spiking over 50%. We saw the same thing out of ECAU later this month, which had a monstrous run from $1 all the way up to $3.61. While I personally took more of a scalper approach with these by buying dips and selling into pops throughout the run, breakouts also offer the opportunity for a nice swing play (as long as you’re willing to cut losses fast if the breakdown fails). Breakouts were one of the first setups I made sure to learn when I first started trading, and this month reminded me of why, with these two great runners.
10. Don’t Trade Off of Emotions!
Every now and then, I need a trade to smack me around to remind me of this. Capstone had just gone out of business, and the replacement broker I had chosen couldn’t accept Illinois residents for the time being, because they weren’t properly registered with the state. After a week of not being able to short sell (and missing some great opportunities), I finally reopened my account so that I could get the borrows I wanted. During my first day with the new account, I found myself wanting to make up for my slow week and itching to short sell a pump from a group that historically has fast collapses. My eagerness to trade outweighed my willingness to truly evaluate the situation, and I started into my short position WAY too soon and had to do damage control rather than exploit a great opportunity (I was down $1500 at one point on this trade). Had I been patient and traded with my head, I could have made a killing on this short. Instead, I traded with my heart, letting my emotions and desire to make something happen take over. This happens to everyone at one point or another, but it is imperative that you learn to control your emotions if you’re going to be a successful trader.
11. Don’t Be Afraid to Walk Away
Sometimes the best trade is no trade. As we creep closer to the summer, action is starting to slow down a bit in the market as “Sell in May and go Away” kicks in. Rather than stay glued to your computer throughout the day and forcing plays, don’t be afraid to walk away for a little while and find something else to do. Even now I still struggle with making dumb trades just for a little action; but allowing myself to walk away during the slowest points of the day has been incredibly helpful in combating that recently.
12. Know Thy Pumper
There are MANY stock promoters out there, and very few of them offer alerts that are actually worth buying. Far too often I see traders talking about dip-buying promotions that are doomed to fail because they do not understand the difference between promoters. Before you even consider trading stock promotions, you must take the time to study the different promoters and learn who is most effective and who to avoid. At the end of the day all these companies are garbage; what matters is who is hyping them up and their ability to make stocks move.
13. Don’t Chase Big Moves!
Whether it’s a recent alert by Tim or the latest hot pump, you do not want to chase large moves. If Tim alerts a buy on a stock, that does not mean that it’s a buy at any price. Tim selects his entry points very carefully, and if you are buying 10% above where Tim did there’s a good chance that you’re not going to have a very successful trade. The same goes for a new major stock promotion. If the stock has already had a big spike, you are opening yourself up to a lot of risk if you chase the spike too far. To determine how far is too far, “Know Thy Pumper” comes in handy. In situations like this, either wait for a dip to get a better entry point, or simply admit that you missed the move and figure out how to better prepare to catch the move next time. There are plenty of people in chat, including myself, who are happy to offer suggestions, so don’t be afraid to ask questions!