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

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

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.

Here's a link to the video if quality on the blog is bad:

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: Here is further information from Michael Goode regarding taxes on his blog:

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.