Description

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

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


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


Monday, February 24, 2014

Trade Recap: 2/24/14 XXII Short

I'm doing a trade recap on XXII because I believe it's a perfect example of momentum snapping on a bullish chart. As you can read in my watchlist from yesterday, my notes on XXII were:

"XXII - Four up days in a row without going red, and chart is starting to overextend. Volume is lighter so executions will be tougher; but I want to short either a large morning spike or a g/r snap."

This morning, XXII quickly gave me the shorting opportunity I was looking for. Below, you can see a one minute chart of the opening few minutes, with a white line inserted representing the previous closing price:

The morning spike quickly failed, and as the stock started to break down, I could tell by the level 2 action that there was a very good chance of the stock dropping below the previous closing price and giving me the g/r move I was looking for. I started shorting and wound up short a little over 7000 shares from $4.21ish. I'd like to note that I was trying to get far more size than this, but the illiquid nature of this stock made executions difficult. Below, you can see how the next hour of trading played out:

XXII had a very fast washout, dropping to a low of $3.61 in just three minutes. I managed to cover about 1500 shares at $3.65 but got stuck in the remainder of my position. XXII then had a very fast and strong recovery, bouncing all the way up to $4.14 in just ten minutes. Despite the fact that my position was suddenly going against me, I stayed calm, and I didn't chase the spike. I knew that in bounce situations retraces back towards the low are very common, as the stock usually needs to retest once. In this case, since XXII was fairly illiquid and it looked like it was setting a higher low, I covered the rest of my shares in the low $3.80s on the pullback. I knew I could always reshort if the stock continued to crack later in the day. As it turned out, XXII held up and closed the day at $4.22. 

XXII was a great example of following a plan and taking profits rather than staying too patient or getting greedy. I let the price action guide me and knew to cover the rest of my shares when XXII set a higher low. For the remainder of the day, I left XXII alone, as the easy part was over and I had gotten the move I was looking for. 

I hope everyone can learn from this trade. Please contact me with any questions!

Watchlist for February 25, 2014

I do not intend to create watchlists very often, as I'd much rather people learn to do them for themselves rather than grow dependent on mine. However, with the OTC market so active, I can't help but put up another! I will be running the same scan as in yesterday's watchlist. Please find the details of my process in this post.

Main Watches:

NVLX - Long 150,000 from $0.344ish. Another fantastic close - maybe blow off top tomorrow morning? Gap-up at least likely. I'll be selling my position if we're opening weak or into a morning spike. The chart is definitely getting overextended; so as soon as we get that g/r snap or a BIG morning spike, I'll definitely take a short position as well!

EKSO - Very impressive run so far! But the chart is undoubtedly overextended, so this is at the top of my watchlist for stocks to short. Like any other overextended short, I want to short either a big morning spike or a g/r move. I think $1-$2 of panic is likely once momentum finally breaks, although the panic could be choppy.

FNMA - Long 60,000 from $3.58ish. I can't believe this is third on my watchlist, but that's the market we're in! GREAT breakout past $3.50, I think a gap up and morning spike is very likely. If we get a weak open, I'll sell my long position and look to reenter into a morning washout anticipating r/g later. I think this has a multi-day run in it, possibly $4+ in the next day or two. Main thing I'd like to see tomorrow is increased volume.

VEND - Well, I need this to be shortable at Centerpoint tomorrow morning, or I can take it off my radar immediately. I'm stalking this for a short only - you guessed it, either a g/r snap or a big morning spike! This is finally speeding up and has held green two days in a row now; so I think when it snaps, it will be a nice washout.

Secondary Watches:

PAWS - Another solid green day but not the strongest close in the world. I might try a short on this when we get the g/r snap, but at these prices and with the lighter volume, I'm not quite as excited about it.

WPWR - Perfect breakout past $.45 today. If past Stocktips promotions are any indicator, this should run nicely now. I won't overnight it, because I'm too scared of a halt, but intraday I definitely will consider buying dips. Once this overextends, I'll stalk for the short, but that likely won't be for a few days.

MRNA - Great recovery after the morning panic today! I'm still hoping this can overextend more for the eventual short. That's the main thing I'm waiting for.

ELTP - Very close to that $.455 breakout! I'd like to see higher volume once we get the breakout, but I think $.50+ is possible if/when we get the break.

Feel free to contact me with any questions guys! I'm a little behind on emails right now, but I'll try to catch up soon!

Disclosure: 
Long 150,000 NVLX from $0.344ish
Long 60,000 FNMA from $3.58ish

Sunday, February 23, 2014

Watchlist for February 24, 2014

I went over some basics as to how I build my watchlist in this post, however, I have found that people learn best through example. Reading pump emails is simple enough, but using scanners to find plays seems to be the area where most people need guidance. I'm going to pretend that I don't have any OTC stocks on my radar for Monday and start a watchlist completely from scratch, walking you through my step-by-step process. Future watchlists will not be this complicated. I just want to detail the process as best I can so others can learn to do this for themselves.

I know many readers of this blog use "Stocks to Trade," so I will run my scan on that platform. However, keep in mind that Equityfeed is a very similar platform, and you can set up nearly the same parameters. You will notice some differences in this scan from what I've previously discussed. There are a couple of reasons for this:

     1. I run this scan when the market is closed.
     2. I'm constantly learning and refining my strategies.

Here are the basic criteria I begin with:

  • Only OTCBB or Pinksheet Stocks
I don't want this scan to include listed securities, so I specify that I only want to scan this sector of the market.
  • Price > $.01
I normally don't trade subpenny stocks, so I exclude them from my scan
  • $ Volume > $500,000
I want to only trade stocks with good volume and good liquidity. This is the figure that I choose to use.
  • Trades > 200
This is a new criteria I use for my nightly scans only. Higher priced stocks can trade $500,000 of volume easily on just a few trades, giving the false impression of liquidity. I've put in a trade minimum to ensure these stocks get excluded from my list.
  • Normal Securities, Q stocks, D stocks, E stocks only
You may have noticed that some OTC stocks have five letters in their ticker instead of four. Tickers with five letters have special designations, most of which you can see in the image below:


Above you can see the only options I choose to scan for are check-marked. "Stocks to Trade" and "Equityfeed" are nice because they allow you to leave out the rest. Most scanners don't allow you to cut out the other options. If I were using one of those scanners, I would just make a mental note to ignore all other five-letter tickers.

Once I have set these parameters, I run my scan. Below, you can see the full list of tickers that meet all my desired criteria:


Once I have this list, I begin pulling up the daily charts of all of these stocks and decide which charts have patterns that I'm the most comfortable with. If I like the chart, it makes my watchlist. I will often break my watchlist into two categories, "Main Watches" and "Keeping on Radar." Here is my list of charts from the above watchlist that catch my eye before prioritizing them:

PAWS
EKSO
MRNA
XXII
NVLX
VEND
FNMA
ELTP
WPWR
FITX

The stocks that are my "Main Watches" are the stocks that I believe are most likely to offer a clear-cut trading opportuity the following day. If I have quite a few "Main Watches," I will prioritize based on which ones I think will be most playable immediately at the market open. Stocks that I'm "Keeping on Radar" are stocks that are nearing a key price point that I believe would offer a play but may not get there the following day. I will often check the "Keeping on Radar" plays at least a few times a day, just in case one shapes up to offer the opportunity I'm looking for.

Now that you understand my process, let me show you my prioritized watchlist for Monday, complete with daily charts:

Main Watches:

NVLX - I'm long 85,000 shares from .294ish heading into Monday. The daily chart is overextending - but there was a speedup in price action on Friday, volume almost doubled, and it closed very strong. A gap up is very likely in my opinion, I would short a large spike or g/r move in the morning, but if the stock holds green this could really start to go crazy. I won't get overly biased one way or the other, and look to trade sharp, volatile moves.

XXII - Four up days in a row without going red, and chart is starting to overextend. Volume is lighter so executions will be tougher, but I want to short either a large morning spike or a g/r snap.

VEND - Hard-mailer promotion still going strong. This probably needs a few days to parabolic before shorting for the massive collapse, but I will consider any g/r snap or fast spike for a short sell scalp. As you can see on the daily chart, the stock has gone g/r multiple days, yet recovered each time.

EKSO - Overextending chart, I will take my typical approach with this and look to short either a large morning spike or a g/r move if it opens weak.

PAWS - Still a little too cheap to short with ECN fees... but Friday was a big up move so I'd be more likely to short a large morning spike than a g/r move.

Keeping on Radar:

FNMA - Would like to wait for the $3.50ish breakout before taking any sort of meaningful position, until then I might scalp fast, excessive moves but that would be all.

FITX - I really like how this is consolidating near its high, no play for me until $.115 breakout but I'll likely take a swing position if/when we get it.

WPWR - Stocktips promotion, $.45 breakout would be my main interest, as their past picks have had very successful breakouts. Not sure I can overnight this though as it's a blatant pump and SEC halts scare me.

ELTP - Another OTC with sold volume consolidating near its high, $.455 breakout buy is the only play I'd be interested in though.

MRNA - Start of a nice breakout on Friday. I'm hoping this can get overextended in the next day or two and set up for a textbook short. Just watching for now.

Some of you may choose different stocks or have different plans for them than I do, and that is absolutely okay! The goal of this post is to help some of you learn how to prepare. Whatever scans you choose to run or setups you choose to focus on is completely up to you!

Also, keep in mind that I will run variations of this scan throughout the trading day on Monday. If any tickers that I left off of my watchlist show sudden activity, I will be ready to add them to my list and I'll develop a plan for them on the fly.

I hope this gives everyone a better idea of how I prepare for the following trading day! The whole process is entirely chart-based and usually doesn't take me more than 15-20 minutes. Please feel free to reach out if you have any questions. Thanks for reading everyone!

Disclosure: Long 85,000 shares of NVLX from .294ish

Friday, February 21, 2014

Level 2 Example: PTOG Opening Action 2/20/14

Please begin by viewing my "Level 2 Basics" video before viewing this one!

Before jumping into the level 2 action, let's start by examining the chart setup and my mindset going into the day:


PTOG had a very strong day the previous day, mostly due to a sketchy PR about this oil company entering the marijuana sector. However, I don't care about the news, just the price action. PTOG managed to close up on the day almost 200%, breaking out past the morning high late in the day. I liked this strong closing price action, so I decided to take an overnight position. I slowly bought into a position at the end of the day, and I bought 500,000 shares to hold overnight from an average of $0.0215. The stock closed at $0.0234.

When starting a fresh day, you don't have a whole lot of chart action to play off of. Going into a new morning, there is really only one price point that I typically consider to be key, which is the previous closing price. If the stock can stay green on the day, or in other words stay above the previous closing price, it is a sign of strength and a positive indicator for the stock. However, if the stock goes g/r (green to red) or, in other words, drops below the previous closing price, that shows a huge shift in momentum and the odds of a large pullback increase.

The video below will show the level 2 action from the morning of February 20, 2014, as well as a real time chart developing. Please pay attention to how I analyze the level 2 in combination with the chart as it is developing.

Hope everyone finds this video useful, and please contact me with questions if you're having trouble!

Note: Video cuts off at the end - sorry about that!

video

Due to poor video quality, please view at this link:
https://docs.google.com/file/d/0B82U0eZh1EYQaUpPN3VQQnNNcTA/edit

Sunday, February 16, 2014

Question: "What DVDs do you recommend?"

This is going to be an easy answer, because I've only seen two trading DVDs, and I recommend both of them! The two DVDs I've viewed are "Pennystocking Part Deux," by Tim Sykes, and "Investors Live: Textbook Trading DVD," by Nate Michaud.

In addition to these DVDs, I've created one of my own, "Trading Tickers: the Long and Short of it." If you read the linked FAQ post, you can see why I think this DVD stands out above the rest, aside from the fact that I made it ;) However, if you want some unbiased opinions, you should be sure to read the early reviews my DVD has been receiving!

"Pennystocking Part Deux" focuses mainly on chart patterns and identifying various setups. It's packed with content, and Sykes keeps it quite entertaining with his wit and over-the-top personality he's certainly well known for. I viewed this DVD during the summer of 2011, when I was first getting started. I found this DVD was quite helpful to me as a beginner, as I was still learning the basics of chart patterns.

"Investors Live: Textbook Trading DVD" came out more recently, so I had a very different perspective since I was viewing it from the standpoint of being a far more experienced trader. Even from this perspective, though, I'd have to be blind not to see the value of it. Nate's DVD is incredibly in-depth, covering everything from chart patterns to building your own watchlists. His attention to detail is incredible, and I really do think there is something in here for everyone, no matter where you are in your trading career.

If I come across more DVDs and think they're worth sharing, I'll add them to this list. I hope this helps!

Thursday, February 13, 2014

Level 2 - The Very Basics

I get quite a few questions about reading level 2 for OTC stocks. Below I'm going to post some old videos I made about the very basics of reading level 2 that will, hopefully, clear up some confusion for everyone. There are a few points that I may not have sufficiently covered in the videos:

1. Level 2 is most useful to me in times of volatility (spikes or panics)
2. Level 2 is more useful to me for OTC stocks than for listed stocks
3. When I trade during volatility (for OTC stocks) I base my decisions more off of level 2 than the chart
4. During consolidation, key points on the chart matter more to me than random level 2 movement






It's possible, if not likely, that I'm unclear at certain points in some of these videos.  Feel free to email me if you need anything clarified. In the future, I will post additional level 2 videos and get a bit more in depth. Until then, review these and memorize the basics, because the basics are key to understanding the next round of concepts!

Tuesday, February 11, 2014

Question: "What technical indicators do you use and how do you judge risk?"

As far as technical indicators go, I like to keep it simple. Moving averages, trend lines, and advanced metrics have never been of interest to me. I really do think they just over-complicate things. When I'm reading a chart, I'm just using the very basic support and resistance levels. See the chart below of CVM for an example:


CVM had its morning spike up to a high of $1.25, a level that held as a top for the next three and a half hours. The red line I drew on the chart represents this resistance level. The yellow line represents the level that I believed to be support. Just as $1.25 acted as a top for most of the day, $1.18 was acting as the bottom. $1.18 had several more tests than the $1.25 level did, but it held every time. As the stock was channeling between this $1.25 and $1.18 range, I was prepared to buy if the stock broke past $1.25 or perhaps even short-sell if the stock cracked below $1.18.

Once the $1.25 breakout occurred, I bought CVM and decided to use the previous $1.18 support level as my mental stop loss. A lot of people would use $1.25 as their risk level, expecting the breakout level to hold. I don't do this, as I have seen plenty of successful breakouts that are choppy at first. In my mind, I could give my position a little extra wiggle room, because I believed I would only need to be concerned if that previous $1.18 support level failed.

Let's use this example to talk a little more about how I manage my risk. I frequently am asked "At what % do you cut your loss?" The point I want to make clear is that I don't think like that! I want to play off of the CHART, not some preconceived notion of what a good % stop loss is. So then how do I keep my risk under control? I think in terms of dollars, not percentage.

In this case, I knew the support on the chart that I wanted to risk off of was $1.18. My buy was at exactly $1.25. That meant I was risking $0.07/share. But what if support had been lower? What if I had needed to risk $0.15/share instead? I control my risk by taking different position sizes in each of these situations. If I'm not comfortable taking more than a $1000 loss, then I shouldn't buy more than approximately 14,000 shares when I'm risking $0.07/share. In the hypothetical example where I have to use a wider stop-loss, I must decrease my position size so that I don't lose more than $1000. In this example, I can only buy approximately 6500 shares. See the math below:

$1000 (max loss) / $0.07 (risk) = 14,286 (# of shares you can buy)

$1000 (max loss) / $0.15 (risk) = 6667 (# of shares you can buy)

By thinking in terms of dollars instead of percentages, I allow myself to focus on the chart and use that to guide my decisions. Check out the chart, assess your risk based off of key price levels, and then size in accordingly. Please contact me with any questions!

Monday, February 10, 2014

Question: "How do you determine who the best stock promoters are?"

So what makes a good promoter? Many people would respond that it's a promoter who can make a stock price increase dramatically when they announce it as their "pick." There is some truth to this. However, there is one angle that I frequently see new traders overlook. When it comes to trading pumps, or any stock for that matter, VOLUME is key. You could have a stock go up 100%+, but this would do you absolutely no good if the stock isn't trading volume. Let's use a promotion from Friday as an example, USNU:


On paper, USNU looks great. The previous day it closed at $0.104, and Friday it hit a high of $0.343. Many people will look at this and say, "Wow, a gain of over 200%!" In fact, the promoter will even claim this pick as a "win" based off of those facts alone. Here's what people fail to notice. When USNU was announced, it traded under $0.30 for only two minutes. During these two minutes, it only traded about 10,000 shares below $0.20 and only 24,000 shares below $0.30! The opportunity to make that 200%+ didn't really exist. It would have been nearly impossible to get an execution on this stock at the ground floor, because hardly any shares at all were traded! Some people would try the "get in at any cost approach" and be the unfortunate buyers that purchased this stock above $0.30 (not coincidentally where most of the volume occurred). Ask yourself, if you were one of these buyers, would you still be long the stock an hour later when it had dipped to $0.17? Liquidity and volume is KEY to trading; without that, a high-odds play doesn't exist. Don't let yourself be one of the suckers who sees the 200%+ claim and decides that the promoter is worth following. Make sure the volume is real and the result is actually realistic.

Let's compare USNU to a promotion that actually did trade volume, just as a reference point. Just this weekend, stocktips.com released WPWR as their new pick. Compare Day 1 of this promotion to USNU:


Unlike our previous example, WPWR traded real volume. About 800,000 shares traded below $0.22, and even more shares traded pre-market, well below $0.20. Would fills have still been difficult with this stock? Absolutely. It's tough to buy any OTC stock into strength, which is why it's important to have the right brokers. However, in this case the possibility for profits existed because there was plenty of volume.

Sure, it looks easy enough in hindsight, but how do you know in the moment which promotion is going to trade good volume and have high odds of spiking? This is where knowing promoter history comes in so handy. Let's look at recent "Stock Tips" promotions, starting with the oldest:




As you can see, "Stock Tips" has been consistently improving with each promotion they've run. The volume has steadily increased with each promotion (trading millions of shares throughout is plenty), and each promotion has run for multiple days. Given these facts, it was very likely that their new pick this morning would trade high volume and have a strong open. By saving emails from "Stock Tips," you could look back at previous picks and draw this conclusion for yourself or create a document to track the performance of their picks so you have that to refer to. Either way, it is important to have a way to check a promoter's history so that you can make better decisions.

One important thing to note is that past performance in no way guarantees future results. Use past performance to help guide your decisions, but don't make the mistake of thinking anything is guaranteed. You must still pay careful attention to the price action and be willing to sell if the promotion starts to fail. A "hold and hope" strategy will only work for so long. Once you run into your first "money-grab" promotion, you will get destroyed if you're unwilling to adapt. What is a "money-grab?" An old promoter known as "Awesome Penny Stocks" had a reputation for huge volume and multi-day runs. They were considered the best promoter out there. Let me show you a daily chart of one of their "money-grab" promotions:


Point made? At the end of the day, you're buying a scam. Never forget that and trade scared, because one day that attitude will save you.

With all that in mind, below I will share a portion of my promoters list so that you can see how I organize it. Who the "Hot" stock promoters are changes pretty frequently, and these days there aren't very many quality promoters left, due to larger awareness of scams and increased SEC halts. I do not endorse these promoters and am in no way affiliated with them, but I do believe they are still worth following. Remember, buying stock promotions is a VERY risky strategy and should not be attempted until you have a good degree of familiarity:

11/3/14 EDIT: LOL a few short months later, ALL of the promoters I had listed no longer exist! Currently stocktips.com is the only promoter left who has proven they can produce volatile picks that have good volume.



Hope this helps. Please send any questions my way!

Sunday, February 9, 2014

Question: "How do you find and track penny stock promoters?"

It's always tricky advising people on which stock promoters they should follow or which promotions they should consider buying. The fact that they are con-artists and the stocks they promote are complete trash makes it very difficult for me to encourage people to buy promotions - unless they're absolutely certain they know what they're doing. However, it's this very strategy that jump-started my account, so I can't just avoid explaining it forever. Let it be understood that I am not, in any way, recommending buying promotions by any promoters that I will discuss. Also, please understand that just because an "effective" promoter is profiling a stock, that doesn't mean it has to go up! Take your time to learn, and please understand that playing these is not for beginners. I can't stress that enough.

The first thing we need to cover is how to find stock promoters. Here's the approach I took:

  • I created two new email accounts
The first account I used to sign up to ALL promoters that I stumbled across. Their results and track record didn't matter - I just wanted to be on their lists and be able to track their history or what current stocks are undergoing promotions of any level. Anytime I find a new promotion website I haven't heard of, I throw it on this email list. I save ALL of these emails. Currently I have roughly 100,000 emails in this account, dating back to early 2012. This way if I see an OTC stock trading unusual volume that looks like it might be a promo, I simply search my emails in this account and see if one of the sites I'm signed up to is sending paid emails on it. It is important that these emails are compensated (you can find this by reading the disclaimer section of the email). Many crummy promoters will email on the current "hot" stock randomly while in reality they have no involvement in the actual promotion.

The second email address I used to sign up again for the promoters that I determined can actually move stocks and are worth paying closer attention to. I separate these because I like to remove the best promoters from the rest of the clutter. It just makes it easier for me to keep track of what the best current promotions are without having to dig through the rest of the clutter. This is my "good" list, and I make promoters EARN their spot on it.

  • I utilized search engines
There are a few ways to do this. The first thing to keep in mind is that different search engines will bring up different results, so don't just limit yourself to one. Then just plug in search terms like "Hot penny stocks" or "Penny stock picks." Aside from going through the first 5-10 pages of results and signing up to all the sites, I paid extra attention to which sites were advertising. Don't just assume that advertising makes for a good stock promoter, but it increases the odds that they are of higher quality if they're willing to pay to get their name out there. Anytime I see a new site advertising, I immediately sign up to it and then wait to see what they email about.

  • I utilized helpful websites
I have to say, involving myself with the Promotion Stock Secrets team was one of the most helpful decisions I made while learning about the stock promoters, and it even helped in gaining a better understanding of how promotions work. The site is absolutely loaded with great information - even reading their free content can be educational. For those of you who would prefer free options, there are other routes to go. Penny Stock Rumble is a great tool to use to find out which websites were sending emails on the top OTC movers of the day. I subscribed to their email list and then signed up to the sites they mentioned in each of their daily emails. This was also a great way to help figure out which sites were connected. pumpsanddumps.com is also a good way to keep track of which sites are emailing on what tickers. I wouldn't rely on this site to give you alerts on promotions, but you can certainly use their information to find more promotion websites to sign up to. Their "Directory of Touts" is especially helpful, although a bit outdated.

  • Pay Attention to DETAIL
You have to notice the little things. pennystock.com is NOT the same promoter as pennystocks.com. Sites ending in ".com" and ".net" are DIFFERENT WEBSITES. Don't get confused by the minor differences. There are tons of crummy websites out there trying to look like the best promoters! You really have to have an eye for detail.

If you have 10 promoters emailing on the same ticker, that doesn't mean they're all related. Read the emails, see which emails are exactly the same. Related websites will send out the same emails, word for word. If two sites are promoting the same ticker but the emails are different, chances are they aren't the same promoter. Once you've began to figure out which sites are related, start a spreadsheet or some other tracking tool and keep track of who's grouped together and what their past promotions are!


I hope this advice on finding promoters will be helpful to all of you! See part two of my article, which details WHAT makes a good stock promoter and some of the promoters I currently believe to be most effective.

Saturday, February 8, 2014

Question: "What charts do you use when trading?"

There are really only two charts I pay close attention to while I'm trading. The first chart that I'll pull up when looking at a ticker for the first time is a daily chart. I typically pull up a daily chart for the past year, but I tend to care more about the recent history and when the volume really started to pick up on the chart. Once I've seen the daily chart and have an idea of what the big picture looks like, I then look at a one-minute chart for the current trading day and make my decisions based off that (all the while remembering where the daily chart is). Let me use HEMP the day I shorted as an example:


Going into the day, as always, the first thing I looked at was the daily chart. Yes, HEMP was only trading at $0.30 entering the day, but that doesn't mean it was "cheap." The FIRST thing I notice when I pull up the chart is the volume. The volume was MUCH heavier over the past month, especially in the last few days. The next thing I noticed is that we clearly have a parabolic daily chart. In three days the stock had gone from $0.10 to a high of $0.34. Another detail I noticed is that during this three-day parabolic, the stock had never gone red on the day, meaning the price never dipped below the previous day's closing price. So, as the trading day began, I switched over to a one minute chart but remembered the "big picture" of where the daily chart was.


The line drawn above on the one-minute chart reflects the previous closing price. Entering Thursday morning, HEMP did gap up a little bit, from $0.30 to $0.3125. When the morning spike failed, however, I started into a short sell position. The stock could not break past $0.32 in the first few minutes, and I knew that even if it did, there was still resistance at the $0.34 high from the previous day. Then the price began to drop. When HEMP broke below that $0.30 mark, I added to my short sale position. I did this because it was the first time in four days that HEMP had gone "red" on the day, which made a panic likely since, "big picture," the daily chart was so overextended. While this doesn't work EVERY time, it's a high-odds trading setup and as you can see on the chart below, it worked out great in this case as I covered into the morning panic:


This is just one example of how I will use daily charts and one-minute charts in combination. Of course, the daily setup could be completely different, and that would change my plan and my bias when trading the intraday chart. Hopefully this gives you an idea of how I use charts to my advantage. As always, please email me if you have any further questions!

Thursday, February 6, 2014

Question: "How do you create your watchlists?"

My watchlists are actually pretty simple; not a whole lot goes into them. There are two things I use to build them - market scanners and my email address.

The email address is simple enough. All I have to do is check my email and see what stocks are being promoted by my favorite promoters (blog post on this coming soon). If the stock is trading good volume or has a chart pattern that I like, it is immediately added to my watchlist for the following day.

Market scans are slightly more complicated. I recommend one of two market scanners, either "Equityfeed" or the market scanner that comes with Interactive Brokers' trading platform. But what exactly do I scan for? Since I've made most of my money trading OTC stocks, the first thing I do is set my filter to only pick up OTC or Pink Sheet stocks.


There are a few criteria I look for when scanning the OTC market. I set my scanner to find stocks that are trading above $500,000 in volume, priced above $0.05, priced below $5, and up more than 5% on the day. This will pull up a list of stocks that meet this criteria for the day. Next, I look at the daily charts for the stocks that appear on this scan and look for chart patterns that I'm familiar with and like to trade. For example, I'll look for daily stock charts that are getting overextended, or perhaps close to a key breakout. If I like the chart, I add the stock to my watchlist. If I don't like the chart, I simply ignore it.

From there, it's simply a matter of prioritizing what I'm most likely to play the following day and which plays are more on radar than immediate plays. When the following day concludes, I decide which stocks to keep on my watchlist (based off of their charts), which to remove, and then I start the whole process over again.

Hope this clears up my preparation process! There really is no more to it than this. I don't dig through filings, I don't analyze news releases, I don't worry about what the message board trolls are saying. It's all about the chart and the pattern for me. If any of this isn't clear, feel free to leave a comment, I'll be happy to clear up any confusion!

Tuesday, February 4, 2014

Question: "What is the $2.50 rule?"

After my post about brokers that I use and recommend, a few people were asking what exactly the $2.50 rule is. Fair enough; let me clear that up.

The $2.50 rule applies when you are short selling stocks that are priced under $2.50. Basically, the rule states that for every share you are short, you still need to put up $2.50 of capital, even if the stock is priced lower.

Why does this matter? Let's say you have a $1000 account and you want to short sell pennystocks. If the stock is under $2.50, you will not be able to take a full $1000 position, even if you wanted to. Here's the math:

You have a $1000 account;

For ANY stock under $2.50, you must still put up $2.50 in capital.

Divide $1000 by $2.50, and the MOST shares you can short is 400 shares, REGARDLESS of price.

This can be a huge frustration for small accounts. You might have the perfect supernova chart and the stock is trading at $1, but you can't short 1000 shares. You can only short 400 because of the $2.50 rule.

Here are a few examples of the MOST shares you can short based on your account value:

$1000 account   -   400 shares max
$2500 account   -   1000 shares max
$5000 account   -   2000 shares max
$10,000 account -  4000 shares max
$25,000 account -  10,000 shares max

The cheaper the stock, the larger a disadvantage this is because of the smaller $ position size you will ultimately wind up taking. Unfortunately, it's one of the realities of short selling but as your account grows, it will become less of a nuisance. I hope this helps clear up any confusion!

Question: "What brokers do you Use?"

Let me start by saying that if any of you see information listed below that is incorrect about any of these brokers, please let me know so that I can fix it! But before I get into brokers, please note that the brokers I use are best for MY trading strategy. I don't believe there is one broker that fits everyone, and it is up to you to decide which broker(s) might be the best fit for you and the trading strategy that you implement. There are plenty of brokers out there that I don't know about or don't care to use, so don't limit your research just to this blog post. Listed below are notable brokers I use or that I have used and some info about each:

  • Interactive Brokers
Commissions: .005/share or 0.5% of total trade value, whichever is less expensive
Trading Platform: "Trader Workstation 4.0"
Platform Cost: Under $10/month
Required Initial Deposit: $10,000 (no requirement to maintain $10,000 in account beyond opening)

Interactive Brokers' main strengths are their low costs and their availability of shares to short. However, while Interactive Brokers typically has more shares to short than other brokers, don't make the mistake of thinking that it will be easiest to short the biggest pump and dumps here. They issue their shares on a "first-come, first-served" basis; and given the limited number of shares they usually have, they run out quickly. However, if you're looking to short and hold long-term, IB probably gives you the best chance of being able to hold the shares beyond the typical three day period. While I still have an IB account, I rarely use it anymore. They just don't have shares available for me often enough, I don't want to rush my entries trying to lock them up in the cases where they do, and I don't take long-term positions so that benefit is meaningless to me. IB enforces the $2.50 rule and the Pattern Daytrader Rule. One downside of IB is that they do not offer level 2 data for OTC stocks.

  • Speedtrader
Commissions: $6.95/trade or $.0044/share + Routing Fees
Trading Platform: "DAS Trader" 
Required Initial Deposit: $15,000 

Speedtrader has recently returned to their former glory, as they've added back most of the OTC routes that they lost and executions are once again superb. I use Speedtrader almost exclusively for buying, and their routing fees are still MUCH cheaper than anywhere else. One downside of Speedtrader is that you will rarely find shares to short of OTC stocks there, however if you open an account with their ETC-clearing division that will help solve this problem. The Pattern Daytrader Rule is enforced at Speedtrader. You can view Michael Goode's early video review of Speedtrader here. One other upside is that I'm a big fan of their trading platform, "DAS Trader". I use it for all my level 2 feeds as I find it to be very reliable and quick information. Unfortunately, they recently raised their account minimums, and now you need $15,000 to open an account.

  • Centerpoint Securities
Commissions: $4.95/trade (up to 10k shares) + routing fees (usually $.002/share)
Trading Platform: "Sterling Trader Pro"
Platform Cost: $284/month for platform + data
Required Initial Deposit: $50,000 (must maintain $30,000 minimum balance)

The old saying, "You get what you pay for," sums up Centerpoint pretty well. While they are the most expensive of all my brokers, they are also by far my favorite. The biggest downside to Centerpoint is the cost. Routing fees and locate costs can really add up in a hurry. That being said, they don't enforce the $2.50 rule intraday. I can almost always find shares to short on the major pumps, and there are plenty of OTC routes; so executions are excellent. This is probably not a broker for beginners, or costs will eat you alive. However, if I had to pick one broker on this entire list to trade with, Centerpoint would be an easy choice.


Whether or not one of these brokers is right for you I leave to you to decide. All I can do is lay out the information. I hope I have given some of you a good idea of what's out there though - but, of course, remember to do your own research and see if there's anything else out there that appeals! Who knows, maybe someday one of you will refer me to the latest-and-greatest broker!

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 SureTrader (offshore - they are sister sites). I personally would only recommend SureTrader 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 Interactive Brokers 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.

http://profit.ly/1MnHUd
http://profit.ly/1MnFtl
http://profit.ly/1MnFlx

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
http://profit.ly/1MnFd5
http://profit.ly/1MnHV9

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!
http://profit.ly/1MnHUV

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 SureTrader 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!