After taking a couple of months off from trading due to personal reasons, I finally had the chance over the last 3 weeks to get back into day trading full time. I have switched my broker from Questrade (which is pretty bad for short selling anything under $2.5) to Interactive Brokers. Truth be told, I have barely done a single trade over the last 15 days – didn’t bother documenting it, as it was more of a last second alert that I followed on $AEMD during a Michael Goode Webinar – Made a $16 profit, yay!.
Over the last week, watching the market every day and not making a single trade has brought me to reconsider some things in regards to my strategy; this was confirmed after I attended yesterday’s Timothy Sykes Webinar.
Dealing with trading anxiety
While in the early days of my trading, when I was getting started back in August, I was being a bit more adventurous with entering positions, as of late I have been experiencing some serious trading anxiety, which consistently led me to hesitating in entering positions and miss good profit opportunities. After discussing about it with Michael Goode and following Tim’s webinar, it was brought to my attention, that even experienced traders experience this and that the problem lies in gaining confidence.
This brought me to the realization that I was trying to enter positions that I subconsciously felt uncomfortable with; in other words, I was setting myself high target profits by wanting to take larger positions worth bigger cash than I was comfortable with playing. I also realized that this anxiety is partly related to the fear of loss. Timothy Sykes pointed out that new traders shouldn’t be afraid of losing as long as these losses are managed, paraphrasing his words “losing $50, $100 is not a big deal”.
I was led to conclude that the solution to this recurring issue was to take smaller positions, learn to lose small amounts and get more familiar with the proper trading patterns.
Cancelling the Noise
One of the big problems that I have also encountered during this trading journey is the amount of “noise” that exists in the world of stocks: emails, chats, twitter, analysts, news, scanners; about everything around seems to be purposely conceived to draw your attention somewhere else and induce some hard-core ADD into traders. This has been another issue that I need to train myself to tackle in order to be able to become an efficient trader.
Talking to more experienced trader has taught me that they don’t follow chats or social media much while trading, sticking to their strategy and to their established watchlist for the day, while occasionally doing some extra intra-day research to find other possible opportunities.
Choosing a Strategy and sticking to it
This is probably going to be the hardest part to achieve: as a new trader there are still lots to learn, and more than the knowledge itself, is the acquisition of reliable experience that will define my trading habits. Unfortunately, at this point, my trading habits have heavily relied upon the experience of other traders, which is keeping me from developing my own niche. The problem is, that as a beginner, with bare knowledge and a lack of experience, it is hard to know what feels right and what doesn’t in terms of a strategy.
This has pushed me to establish some basic guidelines that I’ll use as my strategy framework based on what others have achieved and my personal needs in terms of trading – The thing is every trader trades differently; I could probably compare it to handwriting, while some people can have similar styles, every style is unique. I think the same applies to trading, and so I must find my way without trying to become Tim Sykes, Tim Grittani or Michael Goode, among others.
So far here are the core elements of my strategy framework:
Try to focus mainly on Stocks under $5.00
Simply because they are cheaper and I don’t have a massive amount of cash.
When I started trading, I had a tendency (and I still do for the most part) to follow Tim Sykes alerts and watchlists, which are great (in spite the fact that he always has a promotional speech in every group interaction he has with his subscribers – ie. trying to sell you something).
While these watchlists and alerts are quite accurate, sometimes they focus on higher priced stocks, which he does get right in terms of price movement/behavior a very good percentage of the time. However higher priced stocks require more capital to trade, and so you can buy less shares and, while the movement may be significant, your potential gains will be much lower.
Also quick price movements can cause bigger losses when the stock is priced higher since you have few shares.
While I may be open to taking positions on stocks higher than $5.00, I will maintain my main focus on these for the time being.
Concentrate on familiar patterns – This is not a guessing game
I’ve seen quite a few of Tim Sykes DVDs and videos (still have quite some to go through), and the main concept that is constantly returning is the knowledge of patterns and what to look for. My work lies in getting ever more familiar with these patterns in a real-time environment.
Here’s the thing, all the videos focus on showing all the different kinds playable patterns, and these chart patterns repeat time and again and again. However, while these patterns repeat often, the patterns depicted once the action is done shows the whole picture and not what traders see in real time.
The main trick is knowing the patterns, but even more importantly so, knowing to recognize these patterns before or while they are happening, while coping with the probabilistic uncertainty of how the price will actually evolve based on the collective will of thousands of traders.
This is experience I must gain by getting familiar with these patterns in real time.
For me, theses patterns will be pumps, contracts and earnings. I’ll try to stay clear of morning spikes/panics and play on intra-day dips and crashes. Buy catalists and sell pumps.
Take small positions
This goes back to my previous mention on trading anxiety. For the pasts couple of weeks I have been unable to make a single trade, mainly because I was scared and I was thinking about going with about 30% to 50% of my current capital – This has been repeatedly been advised against by every experienced trader that I have talked to, and repeatedly mentioned in Tim Sykes DVDs. However, kind of like road laws, we always think that these rules only apply to others.
Taking a step back and thinking about it more objectively, it makes sense that going 30% to 50% is idiotic; the motivation behind it was the eager feeling of making massive profits like the big guys do. And I should know better as a 25 year martial artist, that experience comes at the price of repetition, more on that later.
The point being I will stick to about 10-20% of my capital at the most, until I start feeling really comfortable with trading and feel confident that I can play higher positions without experiencing a crippling “trading anxiety”. As a side note, experienced traders have mentioned that they still experience it all the time.
While I wanted to enter with bigger positions, I didn’t go through with it (see trading anxiety above), which is good, because I haven’t incurred any losses and I have been watching the market and learning from a couple of pumps, contracts and earnings plays. Like Timothy Sykes would say, I already did better than 90% of traders by not playing.
Don’t look for big profits… yet
I think this has been my big problem so far. Trying to reach profits like the big boys while being inexperienced in this trade (no pun intended, well.. kind of.). At this point, I will focus on making trades and trying to make these trades successful ones without necessarily racking in $1000+ profits.
My main focus will be on making sure that I am able to predict the motion of the price based on the technical analysis until I know I can go for bigger profits and feel comfortable with predicting movement.
Cut losses quickly and stay disciplined
This hasn’t really been a problem for me, but it is always worth keeping in mind. Staying disciplined about the strategy and cutting losses as soon as I feel uncomfortable about the movement of the price is primordial to limiting the potential downside of trading. Losses will happen, but they can be managed, and they have been so far.
Make my own watchlists
This is another big point for me. I don’t like relying on others for my own achievements; yet, so far I have been dependent on Timothy Sykes’ watchlists to do my trades.
A note about that: I personally don’t like Timothy Sykes’ public persona (Tim If you ever read this, I REALLY don’t like your public persona, it annoys the living hell out of me), and while I understand it is necessary to his core teaching/instructional business (which I think represents the core arrogant mentality of Wall Street), I also don’t think that he’s really that way in person, and that he’s probably a much less annoying individual in real life (at least that’s what I hope), probably a likable guy. On the other hand, I also think he is very experienced and skilled in terms of trading: both his watchlists/alerts and DVDs (although very repetitive from one to the next) do provide very good information on penny stocking, and it is the main reason why I embarked on this journey. His watchlists are actually accurate most of the time even if the timing can be off at times, the end result is that he’s become very good over the years at seeing how the price will move.
I honestly encourage new/beginner penny stock traders to sign up to his pricey alerts/watchlists/chats, as they can provide a lot of direction to newcomers; if you do want to sign up, you can use my Affiliate Link to Sign Up, and I’ll get paid for your subscription too
All that being said, and while his watchlists are very good for people starting up, I want to be able to be self reliant as soon as I possibly can and not be depending on the research of a third party, regardless of how good the insight provided may be.
If I don’t do this, I’ll just be a trader that relies on more experienced traders to generate profits and I’ll never reach my potential. As a result, over the coming months, I’ll start paying less attention to Tim’s lists and start making my own without his help – I’ll use his as a comparative baseline to see how I’m doing in terms of play choices.
Repetition makes the master
This goes back to the discipline aspect, but more importantly, the the aspect of practice. Practice is what is experience is made of, and proper reliable experience is what I lack. So by taking smaller positions, I’ll be able to play around and gain good experience without crippling myself when a loss occurs and keep on doing repeatedly until I excel at it and start generating some real profits by knowing and determining how a stock is going to evolve during the day.
Understand that I am still gaining experience
Coping with the idea that I am still learning is a hard one. I like to learn and I like to do it fast and efficiently, but like every new endeavor, there is a time consuming unproductive and inefficient active process that consists of learning how it works. And while I like to move fast, I am restricted by the factors of trading hours and capital.
I am inexperienced and I don’t possess all the knowledge, but understanding this right now will help me become a better trader by being more conservative during the training process.
Other cool tricks I learned
On Tuesday I attended Michael Goode webinar on short selling; he did share a very interesting short-selling trick that while uncommon in the real environment, I found to be quite interesting. I think he referred to it as “trading the spread”, which applies to stocks that have a very wide spread where the trader can short sell the stock for the ask and immediately buy cover at the bid price, managing to make a direct profit on the spread.
In conclusion, here’s what I take from all this:
- Take smaller positions
- trade small but often when opportunities are present – don’t force trades or overtrade
- cancel the noise
- practice and gain experience in the real-time environment
- don’t look for profits quite yet
- trade stocks under $5.00 as much as possible
- stay disciplined
- short pumps, buy predictable gainers – stick to familiar patterns
- pick a strategy and stick to it
- make your own watchlists and stop relying on others to do your work
- Know that you’re still learning and gaining experience
I have always known that making money trading penny stocks was a process that involves hard work and never expected this to be a magic make money right now scheme. This should be abundantly clear to anybody who wants to enter this strange world. It takes time, hard work and dedication to excel at it and make money.