Trade recap for Friday the 13th: Previous resistance becomes support; set stops accordingly

I have to be the only one to lose money going long NLST today. Oyvey.

After recording the video I bought 50,000 VGPR at $0.0201 and sold 50,000 at $0.021  +$23.62 realized

BOT    2,300    NLST    false    Stock (NMS)    2.3200    USD    SMART    09:32:00        11.50
SLD    2,300    NLST    false    Stock (NMS)    2.1700    USD    ISLAND    09:33:56        11.50
+    SLD    200    VRMLQ    false    Stock    23.500    USD    SMART    09:34:01        1.00
SLD    200    VRMLQ    false    Stock    22.90    USD    SMART    09:38:04        1.00
+    BOT    2,300    NLST    false    Stock (NMS)    2.337    USD    ISLAND    09:43:37        11.50
+    SLD    2,300    NLST    false    Stock (NMS)    2.280    USD    SMART    09:44:34        11.50
+    BOT    2,300    NLST    false    Stock (NMS)    2.430    USD    ISLAND    09:46:39        11.50
+    SLD    2,300    NLST    false    Stock (NMS)    2.453    USD    SMART    09:47:42        11.50
BOT    1,000    IMGG    false    Stock (OTCBB)    1.6400    USD    ARCAEDGE    14:14:35        5.00
SLD    1,000    IMGG    false    Stock (OTCBB)    1.6500    USD    ARCAEDGE    14:22:40        5.00
BOT    50,000    VGPR    false    Stock    0.0200    USD    SMART    14:56:19        5.00
SLD    25,000    VGPR    false    Stock    0.0220    USD    SMART    15:02:48        2.75
+    SLD    25,000    VGPR    false    Stock    .019    USD    SMART    15:26:42        2.42

Daily profit: ($99.86)

Weekly profit: $3264.56

For Livestock viewers, here’s the Grand Canyon from a helicopter:

helicopter

Disclosure: No net positions in any stocks mentioned in this post. I have a disclosure policy and you can find all my disclaimers there as well; those disclosure & disclaimers are incorporated by reference into this post.

Trade recap: Laissez les bons temps rouler!

Pardon the lack of substantive blogging (and trading) over the last few days; I was in New Orleans for a friend’s wedding. Saturday night I took my wife out to dinner at Restaurant August, one of Gayot’s top 40 restaurants in the US in 2008. We both had the restaurant’s seven-course tasting menu. I also made sure to get some very good (and surprisingly cheap) pastries at Le Croissant d’Or in the French Quarter.

Daily profit (yesterday and today): $69.90

Me enjoying a beef fillet at Restaurant August in New Orleans (course 5 of 7):
august

Disclosure: No positions. I have a disclosure policy.

Understanding engineered breakouts

Video trade recap plus my analysis of what I call an ‘engineered breakout’, when concentrated buying, whether by a single large trader or a trader with a following (such as Superman or the Lionmaster or others) causes a technical breakout after which momentum buyers further push up the stock. Best quote of the video: “This is the best damn trade recap video you will see … today.”

Due to overwhelming demand (most particularly from Tim Bohen aka tbohen), I will be borrowing an iPhone with the “I am T-Pain” app on it while in Vegas so I can auto-tune a trade recap or two. (See Autotune the News if you do not understand.) I have a volunteer who will lend his iPhone to the effort so no need to worry.

Daily profit: ($11.64)

Disclosure: No positions. I have a disclosure policy.

ONCY's lesson: Don't sell a stock if it is banging the offer

I messed up an easy trade on ONCY today. Lesson: if a stock keeps trading only at the offer (ask) and not at the bid, and the bid keeps rising, it is probably going to continue to go up.

oncy_multiday

+    BOT    1,300    ONCY    false    Stock (SCM)    3.220    USD    SMART    09:32:08        6.50
+    SLD    1,300    ONCY    false    Stock (SCM)    3.300    USD    ISLAND    09:33:20        6.50

ONCY

Here is a screenshot of the time and sales from right before I sold (I sold at 9:33:20). It actually was not just printing at the offer, unlike how I remembered, but it was at least balanced between bid and offer and the bid did not drop after hitting 3.26.

Daily profit: $91.00

Weekly profit: $3583.25

Disclosure: No positions. I have a disclosure policy.

Trading based on whole number pivot points

One of the keys to making money trading stocks is to learn certain ways in which people behave in illogical or emotional ways and then trade to take advantage of those people. It is even better to understand why people act in certain ways so that the trader can be certain that they won’t change. One example of this is the pump and dump: I know that people are always greedy and lazy, so some people will always be willing to buy into the hype of a pumped company. I can profit from this by buying well-pumped stocks and by shorting them when the pump is over.

One of the things I have found with stocks is that people put a lot of importance on round dollar marks, such as $1.00, $2.00, $5.00. So if a stock breaks a round number it will tend to run. People like to think with whole numbers partly because it is easier to do mental arithmetic using those numbers. This leads people to place many buy and sell orders right around round numbers. For a stock at $2.90, there may be twice as many sell orders between $2.99 and $3.01 as between $3.01 and $3.10. So if a stock can break through a round number (in either direction) it will tend to run a bit. While this does not work all the time, it does work more than 50% of the time, at least with momentum stocks priced under $10.

While it is easy to find inefficiencies in the market, it is possible for many of them (like the January effect) to be arbitraged away. Therefore, it is always nice to see evidence that a particular inefficiency has been known for some time and yet remains; this indicates it is less likely to go away. Here is what the great trader Jesse Livermore wrote about round numbers:

Many years ago I began to profit from the simplest of type of Pivot Points trades. Frequently I had observed that when a stock sold at 50, 100, 200 and even 300. a fast and straight movement almost invariably occurred after such points were passed.

Thanks to Pradeep over at Stockbee for mentioning the above quote from Livermore’s book How to Trade in Stocks.

Another psychological pivot point that I use to trade is green/red or red/green, when a stock breaks above or below its previous day’s close. While the difference of a couple cents is minuscule in real terms, there is a big psychological difference between a stock being up for the day and a stock being down for the day. This is related to the tendency of traders to prefer to take small profits but not take small losses. Even if the amount of money involved is tiny it is psychologically painful to take a loss but pleasurable to take a gain.

Trade recap: A plethora of errors

Today was a horrible day. Not because my loss was huge; rather, it was acceptable. It was horrible because I messed up what should have been an easy trade. I even messed up pronouncing “plethora” in the video. Despite following EMGE closely over the last two days and seeing the exact same pattern play out a week ago in GVBP, I messed up the trade completely.

Daily profit: ($1487.99)

Weekly profit: $192.74

Disclosure: No positions. I have a disclosure policy.

How to track your stock trades

I am a firm believer in tracking all your stock trades. In fact, you can see how all my trading strategies are performing by visiting my trading profits page. By tracking your trades according to which strategy you are using you can identify how profitable a strategy is and whether you should be using more or less money to trade it. Furthermore, tracking your trades will help you to avoid trades that are based on hunches and not on specific strategies, because it will quickly become clear how quickly you lose money on such trades.

Download below a version of the trade log spreadsheet I use. Use a separate sheet in the spreadsheet for each different trading strategy. Watch the video below if you need guidance in how to use the spreadsheet.

Excel 2000 trade log spreadsheet
Open Office trade log spreadsheet

[Edit 2013-12-3]: I created a new version that has separate columns for commissions because some people find this to be simpler (I just use formulas to include them in the trade price) and I saved this in the current Excel format. Download here.

[Edit 2015-3-24]: I finally uploaded a version to Google Docs and improved the formulas. Go to “File” > “Make a copy” to save a copy to your Google Docs so you can edit it.

Disclosure: No positions in any stocks shown in the spreadsheets or in the video.

August 20th trade recap

Video recap today. I really, really messed up RTK. It was a perfect short on green/red and I was too shell-shocked from yesterday’s losses to play it (except during the TimAlert).

+ BOT 300 EDAP false Stock (NMS) 5.340 USD SMART 09:32:03 1.50
+ SLD 300 EDAP false Stock (NMS) 5.433 USD ISLAND 09:33:10 1.50
BOT 300 BONT false Stock (NMS) 5.27 USD ISLAND 09:38:12 1.50
+ SLD 300 BONT false Stock (NMS) 5.311 USD SMART 09:45:33 1.50
+ SLD 10,000 RTK false Stock 2.422 USD BATS 09:46:21 50.00
+ BOT 10,000 RTK false Stock 2.346 USD BATS 09:47:06 50.00
+ BOT 10,000 RTK false Stock 2.199 USD AMEX 10:53:06 50.00
+ SLD 10,000 RTK false Stock 2.177 USD SMART 10:54:53 50.00
+ BOT 1,000 MERC false Stock (NMS) 1.530 USD SMART 11:34:01 5.00
SLD 2 EDAP false Stock (NMS) 4.11 USD DRCTEDGE 11:38:49 1.00 (this was an accidental trade for 2 shares)
BOT 2 EDAP false Stock (NMS) 4.20 USD DRCTEDGE 11:39:23 1.00
+ SLD 1,000 MERC false Stock (NMS) 1.400 USD SMART 11:52:15 5.00
SLD 500 HOOK false Stock (NMS) 3.1509 USD SMART 14:28:27 2.50
+ BOT 500 HOOK false Stock (NMS) 3.170 USD SMART 14:32:08 2.50

Today’s Profit: $221.69

Disclosure: Long 249 shares ZRBA. I have a disclosure policy.

The truth about Tim Sykes from a former critic

Is Timothy Sykes a fraud? The former trading wunderkind and small-time hedge fund manager now sells stock-trading DVDs and trading advice. Should you listen to him? Should you ignore him? Read on for the answer.

When I first came across Tim Sykes over a year ago I was skeptical. One year later, after $77,775.01 in profits using his trading strategies, I have turned from Sykes’ greatest critic to his most ardent fan. This is the story of how he changed my mind.

I first came across Sykes in March of 2008 and I wrote this critical post:

Timothy Sykes, the boy wonder who turned $12,000 into $1.65 million while still a teenager, has abandoned his hedge fund Cilantro to re-create his day-trading achievement in full view of the internet on his new blog. Sykes is best described as young, brash, egotistical, and annoying. Of course, an impartial observer would describe me in much the same way. Timmay and I also share the preference for shorting stocks over buying them. But rather than being two peas in a pod, we are polar opposites: Tim is the quintessential short-term trader and I am the archetypal buy-and-hold value investor.

I am not like some people who say that day trading is a crock and that it never works. It can work for some people some of the time. The problem with Tim Sykes is that he encourages others to follow in his footsteps by buying his happened to Richard Dennis, the noted commodities trader, who famously lost tens of millions of dollars in 1988 after his trend-following strategy stopped working. Sykes of course likes trading microcap stocks with relatively thin markets. This means that his system is especially prone to break when too many people start using it.

  • Trading takes a lot of time; this is particularly true for Timmay’s day trading and momentum trading. Most people have jobs, and very few people have enough in savings and enough trading talent to make a lot of money trading. So for most people, time learning to trade would be better spent nurturing their career or working a second job.
  • Trading any system takes incredible self-restraint and guts. Very few people have the self-control to be able to stick to a system even when it is not making money. This is even harder if a trader buys a system (say, from Tim Sykes), because it is harder to become truly convinced in the system if that trader did not invent it himself or herself.
  • Traders and investors should steer clear of Sykes’ DVD and his trading system. Those few who could be good traders would likely do better developing their own system rather than following Tim’s. Of course, I find Tim amusing, so I encourage you to read his blog for its amusement value.

    Sykes and I had a rather entertaining back and forth in the comments on that blog post. After that exchange, I decided to do some deep research. I went back over every single one of his blog posts. I looked up the stock charts on every stock he mentioned to see whether his predictions about stocks were accurate. I looked at every single one of his previous trades (all verified by Covestor, on which he is the #1 ranked trader; please note that Covestor does not account for cash in a trader’s account when it measures performance; so while according to Covestor Sykes is up 48,000% since November 2007, and he would be up this much if he invested 100% of his account in each trade, his account is up only 475%). I realized that Sykes’ trading system worked. He was right far more often than he was wrong. His trades were consistently profitable. I bought his Pennystocking DVD and his book and I subscribed to his TimAlerts trading alert service.

    I started trading using both by following his trading alerts and by trading on my own using what I learned from the DVD and book. Slowly, almost inexorably, the profits piled up. And it wasn’t just by piggybacking on his trades that I made money; when I traded stocks he did not trade I made even more money. As I write this, my total profit from TimAlerts is $28,093.77 while my total profit from doing similar trades on my own is $49,667.25.

    In September of 2008 I wrote  Why I paid Tim Sykes $2000:

    I previously wrote about Timothy Sykes and his attempts to teach stock trading to the masses. That post is now my most commented-upon post on this blog and one of the most frequently viewed. Since writing that post I have changed my views on Timothy Sykes.

    First, I have concluded that at least at the present time Sykes’ trading system works quite well. This does not mean that it will necessarily continue to work, and anyone using his system should not put blind faith in it. That being said, the basic premise of short-selling hyped-up stocks should continue to be successful far in the future, although the details of how best to do that will certainly change. I believe in Sykes’ system enough to trade a decent amount of money with it, and so far I have made quite a bit of money trading his system. You can see some of my successful trades on Covestor (note: I no longer use any brokerage accounts that Covestor can auto-follow, so my trades are no longer there).

    I have become so convinced of the benefits of Sykes system that I bought his DVD, subscribed to a year of his TimAlerts service (whereby he sends his followers alerts every time he makes a trade, and I even recently bought the first Lifetime TimAlerts subscription (for which I paid him $2,000). I even signed up to be an affiliate to sell his products.

    Normally a trading system will either produce a good probability of a profit (i.e., a high percentage of trades will be profitable) or a good ratio of average profit to average loss. Sykes’ system generates both a high percentage of profitable trades and profitable trades that make far more money than unprofitable trades lose. In this sense it is the Holy Grail of trading. The system’s major limitation is that it generates very few trading opportunities where more than a few thousand dollars can be easily deployed, although there are occasional trading opportunities where hundreds of thousands of dollars can be easily used. Also, there are relatively few trading opportunities. This limits the amount of money that can be made with this system to maybe a couple hundred thousand dollars a year at best. However, this limitation of the system also minimizes the chances that hedge funds will exploit the same inefficiencies that the trading system exploits and thus render the system ineffective.

    The other problem with a trading system that produces few trading signals is that it is hard to keep from over-trading. The hardest thing to do is sit and wait, as evidenced by Sykes’ own history of impulsive, forced trades. While he was still able to reap huge profits, others may be less disciplined. I have already seen evidence of followers of Sykes’ TimAlerts service trading way too much (and Sykes himself has criticized his followers for this numerous times). I think it likely that some of them will trade away all their profits by forcing trades when the risk/reward ratio is poor.

    My Original Criticisms Still Stand

    In my original article on Timothy Sykes, I laid out three criticisms of his plan to teach trading to the masses. These criticisms still stand, although these criticisms point out the limits of an otherwise powerful system, rather than revealing the ineffectiveness of the system as I argued in my original article. Anyone considering following Sykes should consider the following:

    1. While Sykes’ system will degrade gracefully (meaning that if it stops working it will gradually generate smaller profits, not change quickly from generating profits to generating large losses), I have already noticed cases where he and his followers’ actions have changed the chart patterns his analysis relies upon. He has enough TimAlerts subscribers that they can easily move the market in certain illiquid stocks. This makes using his system more dangerous than if he did not have so many followers.

    2. Trading takes time. For many of Tim’s followers, with tiny $5,000 accounts, the amount of time they spend trading the system (especially if they do not follow his advice and ignore non-ideal trades) can be disproportionate to their gains. While I am a full-time trader (I utilize a few strategies, not just Sykes’ strategy), many of his followers have other, full-time jobs. Those people would be wise to concentrate only on the most ideal trades, lest they ruin their careers in a vain attempt to get rich trading.

    3. Most people do not have the emotional restraint to be successful traders, no matter how simple and effective the trading system they use. This is my most important criticism. As even Timothy Sykes points out, over 95% of stock traders lose money. Those who cannot handle the emotional demands of trading will likely lose money even if they try to trade a system as simple and profitable as Timothy Sykes’ trading system.

    Conclusion

    If you want to try trading stocks, try following Tim Sykes’ system (I suggest just reading his website and analyzing his trades for a few months, although you can go ahead and directly buy his DVD or TimAlerts trade alerts service if you are rash); it is the best stock-trading system I have seen, as evidenced by Sykes’ top rating on Covestor and his multi-year performance record. However, most stock traders will lose money because they let their emotions rule them; using a profitable system will not prevent them from losing money. Recognize your limits and do not try to trade if you do not have the requisite emotional control.

    Conclusions about Tim Sykes

    Tim Sykes’ trading system works. He is selling the real thing, not a scam (unlike most other trading gurus). Trading based on his TimAlerts service has given me more than ample profits. Trading based on what I learned from his DVDs (I recommend Pennystocking 2, it is by far his best DVD) has been even more profitable. He is one of the few stock traders selling their trading systems who has an impressive and verifiable record. Furthermore, he is honest about the limitations of his trading system: it is not scalable. It would be hard to put more than $100,000 into many of Sykes’ trades and the best percentage returns often come in illiquid stocks where a $10,000 position would be the prudent maximum. But this Achilles’ heel of Sykes’ trading system is also a key feature, because it ensures that hedge funds and other sophisticated investors will not come to dominate this niche.

    sykesprofit_med

    Disclosure: No Positions. I am an affilliate of Tim Sykes as well as a customer (although I did not become an affiliate of Sykes until after I had gained over $20,000 in trading profits using his system), having purchased multiple of his DVDs (I recommend Pennystocking Part Deux; it is by far the best) and being a Lifetime TimAlerts member. I own Pennystocking, Pennystocking 2, and TimRaw. I have a disclosure policy.


    Profit from Penny Stocks. Learn from a millionaire who shares everything! Learn from Timothy Sykes.