Trading Strategy – Page 7

Scanning for volatile stocks: Stocks with high ADRs

If you are a momentum day-trader then you want to know which stocks are moving. One way to measure that is the average daily range, which is a measure of the average range (low to high) of a stock over a period of time. Here are a couple scans I use to get high ADR stocks. These scans can be once a week; the results do not change that much from day to day.

Stockfetcher scan for stocks with an increasing ADR

The following scan looks for stocks with an ADR over the past 10 days that is higher than the ADR over the past 30 days and where the ADR over the past 30 days is above 10% (a average range of $4.50 to $5.00 would be a 10% ADR). Running this scan on the date this post was published I found 18 stocks, including the following: TLR, ROIAK, MERX, CLWT, THLD, CXM, EMMS, CNOA, LPIH, RPRX, FSII, ASTC, ACLS, LEE, HILL, MNI, CIT-A, IGC.

show stocks where close is between 1 and 20
average volume(90) above 50000
average volume(10) above 500000
and average day range(30) is greater than 10 percent
and average day range(10) is greater than average day range(30)
sort column 5 descending

set{volchng, average day range(10)-average day range(30) }
set{adr30, average day range(30)}
set{C1A, volchng / adr30}
set{C2A, C1A * 100}
and add column C2A {volatilityChng%}

Stockfetcher scan for higher-priced stocks with high ADRs

The following scan scans for stocks with a price between $10 and $20 and an ADR over 10%. Currently no stocks meet the scan requirements, so I would suggest lowering the minimum ADR. Running this scan on the date this post was published, with a minimum ADR of 8%, I only find one stock: DRV.

show stocks where close is between 10 and 20
average volume(90) above 50000
average volume(10) above 500000
and average day range(30) is greater than 10 percent
sort column 5 descending

set{volchng, average day range(10)-average day range(30) }
set{adr30, average day range(30)}
set{C1A, volchng / adr30}
set{C2A, C1A * 100}
and add column C2A {volatilityChng%}

Disclosure: I am a subscriber to Stockfetcher.com and have no other relationship with it. I have a disclosure policy.

Trade recap: A swing and a miss

Just as I previewed in my watchlist last night, I shorted 5,000 shares of OPTT on red (I alerted this trade via Twitter too). I got whipsawed out and then chickened out after re-shorting. Tough loss.

Daily profit: ($1678.00)

Disclosure: No positions. I have a disclosure policy.

Trade recap: Do your own due diligence

My call of PLUG as a potential long was horrible. Yesterday it did gain nicely but it spiked in the morning (reaching its high around 10am) and then faded all day. The fade has continued today, albeit more gradually. A stock that spikes quickly and then fades all day is not likely to continue its upward move.

To correct what I said in the video, IMGG’s stock dilution from the PIPE they announced two days ago was only 40%, not 100%. Still, that is crazy dilution. With 370 million shares outstanding now the company has a market cap of $260 million.

Daily profit: $50.00

Weekly profit: ($380.64)

Disclosure: Short 5000 shares of IMGG. 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.

How to trade the upcoming Doubling Stocks pump & dump

Doubling Stocks (along with a number of other stock promoters) pulled off one of the best pump & dumps of the year back in May by pumping UOMO Media Inc. (OTC: UOMO). The pump sent the stock from $0.35 to $1.00 in one day. I was too afraid to make money buying it (I actually bought it in the pre-market on the pump day but sold right after the open … a few minutes later it rose like a rocket), but I did make some money short selling it. All told, I made over $1,100 on it.

Of course, by being unethical losers, Michael Cohen and crew at Doubling Stocks made far more than that. They received only a measly $50,000 from a third party to pump the stock, but they bought 400,000 shares prior to the pump that they then sold into the pump. Tim Sykes had a good post on the pump where he copied the full disclaimer. A very conservative estimate of Doubling Stocks’ trading profit would be $140,000, if they bought at $0.35 and sold at $0.70. A more likely average buy price would be $0.25 as they probably bought over a week or two prior to the pump, with an average sell price right near the top of the pump at $0.90. If that was the case, then they made about $260,000.

Michael Cohen of Doubling stocks has been sending out emails about his forthcoming pump, which will come on October 30. Here is his description of his previous pump:

About 5 months ago, before
my last stock pick I said:

“If this stock doesn’t triple
within 48 hours I’ll RETIRE
as a stock picker”

What happened?

The stock rocketed from $0.35
to $1.06 in under 48 hours!

But this time he writes that the stock will take a lot longer to rise:

However, this time… I believe my
new pick will steadily climb to
its peak over a span of 14 to 21
days.

What does that mean? Of course, I cannot know for certain, but I bet that means that he is going to gradually sell his holdings into the pump to make sure that it rises slowly. Or, he could be getting paid a lot of money for the pump and whomever is paying him is planning on dumping a huge number of shares into the market, keeping the stock from rising much. If he gets paid enough money for this pump he won’t care if the stock goes up or not. He’ll be happy to screw his followers, because he can always build another pump and dump site. Such is what happened to StockPreacher last summer. No matter what, the risk of going long a pump such as this is high and I will likely not look to buy it. I will, however, look to short it aggressively, something I did not do last time.

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.

+ 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

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.

Update on trading Tim Sykes' system

My fairly consistent profits from trading using Tim Sykes’ system have continued. Despite some sketchy trading, my profits have been helped by the plethora of pump and dumps recently and me scalping TimAlerts for quick profits (in fact, my recent trade of RODM nearly paid for the TimAlerts lifetime subscription that I bought a year ago). I thank Tim for all he has taught me and I heartily recommend his Pennystocking Part Deux DVD to anyone who wants to learn how I and he trade stocks.

(click chart to enlarge)

Note that the profit on this chart does not include the profit from my watchlist longs, which are definitely in the style of Tim Sykes. As I write this I have accumulated $1770 in profits in that strategy over the last 40 days. See my recent detailed report on how successful those trades have been.

If you like more detailed statistics, here is a histogram of my profit margin on Sykes-type trades:

(click chart to enlarge)

Unfortunately I am not the most experienced with creating histograms in Excel. No trades fall below the -16% return bin, but eight trades generated more than 22% profit (they are just thrown into the 22% bin; the largest profit margin was 51%).

Disclosure: See my disclosure policy.

Making money by buying stocks on my watchlist

I have netted $1,776.12 buying stocks on my watchlist since I started this blog. I have learned to buy stocks on simple breakouts by following what Tim Sykes teaches in his Pennystocking Part Deux DVD (and his other DVDs), although I do have my own style when playing these. While this is not large relative to my account or other profits, it is impressive because I am generally very poor at buying stock. I am satisfied with my gains so far and if I can keep generating such nice profit margins I may look to increase my position size. I have tweeted some of these trades (like my great trade of GSAE yesterday).

(click chart for full-size chart)

Following are some details on these trades:

Average profit: 4.63%
Weighted average profit: 3.02%
Winning trades (%): 86.7%
Normal position size: $5,000.00

Ticker	Type	Shares	Open Date	Price	Position	Close Date	Price	Profit ($)	Profit (%)
AXL	long	1000	8/19/2009	$5.72	$5,717.00	8/19/2009	$5.99	$268.00	4.69%
RTK	long	2000	8/19/2009	$2.44	$4,870.00	8/19/2009	$2.47	$60.00	1.23%
XIDE	long	700	8/24/2009	$7.74	$5,414.50	8/24/2009	$7.85	$77.00	1.42%
VG	long	1000	8/26/2009	$2.29	$2,288.00	8/26/2009	$2.58	$287.00	12.54%
HLCS	long	2500	8/31/2009	$1.85	$4,617.50	8/31/2009	$2.08	$570.00	12.34%
HLCS	long	1000	8/31/2009	$2.21	$2,205.00	8/31/2009	$2.30	$90.00	4.08%
SVA	long	200	9/1/2009	$11.60	$2,319.00	9/1/2009	$12.02	$84.00	3.62%
GTN	long	200	9/8/2009	$1.24	$247.00	9/8/2009	$1.28	$8.00	3.24%
EXXI	long	4000	9/8/2009	$1.49	$5,940.00	9/8/2009	$1.40	($360.00)	(6.06%)
VVUS	long	400	9/10/2009	$12.65	$5,058.00	9/10/2009	$12.68	$15.20	0.30%
IVAN	long	2500	9/11/2009	$1.93	$4,812.50	9/11/2009	$1.86	($175.00)	(3.64%)
RAME	long	4000	9/15/2009	$1.14	$4,540.00	9/15/2009	$1.26	$501.80	11.05%
YRCW	long	800	9/24/2009	$5.99	$4,793.60	9/24/2009	$6.08	$74.12	1.55%
GSAE.pk	long	1000	9/29/2009	$1.08	$1,075.00	9/29/2009	$1.32	$240.00	22.33%
VSR	long	900	9/30/2009	$5.41	$4,864.50	9/30/2009	$5.45	$36.00	0.74%

Here is my reasoning for each of the above trades:

AXL looking for continuation on strong breakout on (so-so) financing news — was up 117% previous day; opened red like market and I bought on red/green cross; got stopped out (was using too-tight mental stop); hit hod of 7.11

RTK looking to short, opened red with market, but bought on red/green cross; sold with too-tight stop; was up on puffy news previous day 86%; hod was 2.93

XIDE solid one-day breakout, bought on second up-day on red/green 3 min after open, sold as it fell off of 7.96 hod

VG up from 0.50 in two days, showed big 50% gap up on day three and I bought right after open and sold quickly (was filled only 1k out of 2.3k shares due to routing issues)

HLCS opened red (mkt gapped down 1%) then went green, had great breakout chart, made breakout previous day, bought (late) as it went green and broke previous day’s high of 1.78–went over $3 for a good chunk of time

HLCS opened red (mkt gapped down 1%) then went green, had great breakout chart, made breakout previous day, bought here as it re-broke hod

SVA was up from 7 to 9.7 previous day on 10x normal volume on some good news, strong throughout day; bought as it broke morning’s highs 2 minutes after open (slow due to computer issues, should have bought at 11.30), sold as it showed weakness; would’ve played larger but was distracted by computer issues

GTN watched for big breakout above 1.14, but gapped above that to 1.24, tried waiting until it showed strength, should’ve just gotten in around 1.22; when I tried to get in I only got a tiny fill so I got out; it hit 1.48 less than 20 minutes later

EXXI was big runner on earnings previous Friday, opened red, went long on green/red, got out after it failed at 5 cents below previous close; good trade

VVUS was up big previous day on drug news, bought on breakout above 12.50, previous day’s high, was slow (even though I had alarm and order set), not good entry, so I got out quickly; also, it had been choppy the previous day

IVAN significant break of 1.85, broke it in pre where I bought it 3 minutes before open (a little late too considering the break) broke my rule of not trading pre-market thinking it is meaningful for market … should’ve waited for open where I would’ve ween its price action suck and wouldn’t have bought

RAME saw alerted by IL in GOTS chat (now Investors Underground chat) he was watching for hod test; looked at multiday chart and saw hod of 1.12 was a significant technical breakout. Bought when it broke hod and started printing 1.13s, sold 20 minutes later on a bit of weakness

YRCW broke out above huge $6 mark in pre-market, opened at 5.90, bought right as it looked to break 6, it took a minute longer, but then it did and hid a hod of 6.20, I sold as it fell off that; later went below 5.70

GSAE.pk huge run chart from .30 to .90 in two days, bought early in morning as it broke morning’s high of 1.05 and sold as it looked like it was fading a little; 5 minutes later it hit a high of $1.79 and quickly dropped off of there

VSR gapped up on news above technical resistance at 5.20, bought right out of open (waiting for a tiny bit of upward momentum), hit hod of 2.70 then quickly dropped, I sold quickly as it tanked

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: The $1920 mug of hot chocolate

Today I shorted EMGE from $2.69 to $2.20 on 1000 shares and had another, tiny, trade. The big trade was me following a TimAlert trade alert from Timothy Sykes. I like to scalp those, and I was quite happy to buy 17,300 shares of today’s alert, RODM, at $5.724 and sell them 62 seconds later for $5.835 (net of commissions), making $1920. I have trained myself to respond quickly to alerts. So even though I was making hot chocolate when I got the alert, I was able to trade quickly after I flew from my kitchen to my computer like a bat out of hell. While I normally like to hold onto some shares of TimAlerts, I could not refuse the nice profit I had already accrued.

Daily profit: $2496.00

After I recorded the video I made the following trade that is reflected in my daily P&L:
+ SLD 1,800 RODM false Stock (NMS) 6.250 USD ARCA 15:56:47 9.00
+ BOT 1,800 RODM false Stock (NMS) 6.210 USD ISLAND 15:57:25 9.00

In after-hours trading I shorted SQNM for a lousy $20 profit:
+ SLD 500 SQNM false Stock (NMS) 3.000 USD ARCA 16:35:56 2.50
+ BOT 500 SQNM false Stock (NMS) 2.950 USD ARCA 16:37:46 2.50

Disclosure: No positions. I have a disclosure policy.