Category: Trading Tools / Software

My Review of Tim Sykes’ Learn Level 2 DVD

After pre-ordering it two months ago and receiving it two weeks ago, I finally finished watching Tim Sykes’ Learn Level 2 DVD and here is my review.

Conclusion: This is a pretty decent trading DVD but there is not nearly enough video of Level 2 in action. As someone who has plenty of experience trading and trading using Tim Sykes’ strategies, I did not want another DVD of Sykes explaining how he trades. I wanted a DVD of him showing how he uses level 2. So most of the approximately 5 hours of video was needless repetition for me. For someone looking to learn Sykes’ strategy I would recommend Pennystocking Part Deux or TimFundamentals Part Deux (I own both). I could only recommend this to someone who has no experience with level 2 and little understanding of technical analysis who may have purchased TimFundamentals or TimFundamentals Part Deux (the two of Sykes’ DVDs that delve least into technical analysis).

Pros

  • Sykes explains important facets of technical analysis and level 2. He shows lots of level 2 data of interesting OTC BB stocks.
  • Presentation style is good and he is easy to understand. He describes the basics of Level 2 so even someone without any experience or knowledge of it can understand him and learn.

Cons

  • There is very little in the DVD that a follower of Sykes with a year of experience watching level 2 would not already know.
  • Video quality is only adequate. The first 40 minutes or so of disc 1 were shot with Tim in front of a green screen and there is some flicker in the green screen. After that disc 1 is screencast and the quality is good. The sound quality is the opposite: the first 40 minutes are very good and after that it is only okay. See the descriptions of the discs below for details on which parts of which discs are screencast and which are done in front of a green screen.
  • After watching a bunch of Tim’s DVDs, I just want him to be a bit more professional. It is okay to look unkempt and have random crazy analogies and to sing the Cotton “Fabric of our Lives” song, but please don’t have a 20-second conversation with your girlfriend in the middle of the video!
  • I would have preferred a lot less in the way of stock charts and more actual live level 2, especially of Nasdaq (not OTC BB) stocks around key inflection points. Most of the stocks Tim showed on level 2 were boring. I know it is tough to find stocks that are most interesting, but I would have preferred waiting another month for the DVD if that had meant I would have gotten to see more interesting and useful level 2.
  • The stocks that Tim shows on level 2 are either OTC stocks (for which level 2 is quite different than listed stocks) or boring stocks that were not moving much. I would have much preferred to see some interesting Nasdaq stocks.

Disc 1: Intro to Tim Sykes and then definitions and level 2 basics.
Disc 2: Looking at a few different stocks on live level 2 but also a lot of intra-day and multi-day charts. This was mostly done in front of a green screen.
Disc 3: Some random stuff about trading stocks, some level 2, Tim trading IFNY (an OTC BB stock) and showing its level 2. Half of this disc came from one of Tim’s weekly Livestock shows. Unfortunately Tim spends some time answering random viewer questions (not related to Level 2) during that segment. 75% of this DVD is green greened, 25% is screencast with Sykes in a little video box.
Disc 4: The first part of this disc does not have level 2 info, just stock charts, with Tim talking about fairly basic technical analysis and technical trading strategies he uses. I like this part, but he should have waited until the right time to record level 2 video to support his various patterns like the “cliff dive.” I do like that this disc is screen captured.

A Gratuitous Level 2 Screencast (recorded by me with little commentary)

Disclosure: No positions in any stock mentioned. I am an affiliate of Tim Sykes and earn a commission if anyone purchases his products through my links. I purchased the Level 2 DVD from Tim Sykes and I own many of Sykes’ DVDs and have certain business relationships with him. See my terms of use for full details about my business relationships with Timothy Sykes.  This blog has a terms of use and you can find all my disclaimers and disclosures there as well; my full terms of use is incorporated by reference into this post.

Join me in the all-new TimAlerts penny-stock chat

I started a penny stock chat room a couple weeks ago. So far it has been a success, with some good alerts in chat, helpful commentary from some good traders, and a large number of traders in chat (the high was over 90 and we have had more than 60 at most times!).

However, I have decided to leave my chat room. Simply put, Tim Sykes gave me an offer I could not refuse to moderate his TimAlerts Chat. Taking him up on the offer was an obvious choice, especially considering that I and many of the people in my chat trade the same stocks he does and thus want to discuss what he is doing. So as of tomorrow, that is where I will be during the trading day. This will make the TimAlerts chat a worthwhile place for traders to see what is moving in the markets and to learn from other traders. With my moderation there will no longer be distracting off-topic discussions. The addition of a moderated and thus more useful chat makes TimAlerts an even better deal. (I’m a lifetime TimAlerts member.) Frankly, I think the chat alone will be worth the price of TimAlerts.

I hope I see you in the new chat tomorrow. If you do come, make sure to read the rules below. Please note that the rules may change and the official rules will be on Tim Sykes’ website (I’ll link them when they are up).

Rules for TimAlerts Chat

1. Be polite.
2. Tickers are to be typed in CAPS. Stock chat abbreviations can be found below (and should never be in CAPS). There is also a list of general chat abbreviations below.
3. Stay on topic during the trading day; keep to stock alerts and brief discussion of potential trades. Feel free to chat about anything after trading hours. If you wish to discuss something random during the trading dayyou can create a new room in chat for that.
4. Colors, bold, and italics are reserved for the chat room administrator (Reaper) and Tim Sykes.
5. No pumping or promoting stocks or bashing stocks. If there is relevant news, research, or price movement, then post it. But do not say things like “Come on SIRI!” or “XXX is a fraud.”
6. No stocks under $0.10.
7. If you give an alert, give a reason; don’t just type the ticker. For example, instead of typing “ECOB!”, type “ECOB dropping like a rock!”
8. No stocks that aren’t moving or don’t have interesting charts. Avoid mentioning higher-priced stocks  (those over $15) unless they have a lot of momentum.
9. Please no random questions to Michael Goode (Reaper) or Tim Sykes (TimothySykes) during the trading day (i.e., “What brokerage do you use?”). Send an email or search their blogs. It is okay to ask their opinion about a stock.
10. Do not send sounds to chat during trading hours.
11. Anyone violating chat room rules or just being annoying will be gagged (anything they type will not be seen by others). Significant abuses can lead to completely banning a subscriber from the chatroom.
12. Ownership of and responsibility of the comments made in the chat room remains with those who type the comments. We (Bullship Press, Timothy Sykes, and Michael Goode) are not responsible for the statements of those who make comments in the chat room. We reserve the right to gag, kick, or ban anyone from the chat room for any reason whatsoever.
13. We (Bullship Press, Timothy Sykes, and Michael Goode) are not financial advisers. We do not give financial advice. We cannot tell you if you should make a trade. All traders need to make their own decisions about what and when to trade.

Helpful hints for using Parachat

1. To send someone a private message double click on their name.
2. To go to a different chat room (such as the offtopic chat room) click on “Roam” at the top of the chat box and then click on “Room List”.  If there are no other rooms, create a new room by clicking on “Roam” and then “Create Room.”

Stock chat abbreviations

adr – Average daily range of a stock over a number of days (the larger the number the more volatile the stock). Thi
b/o – Breakout
o/n – Overnight
e/r – Earnings release
ss – Short sell
hod – High of the day
nhod – New high of the day (used when a stock has broken above a previous high)
52s – 52 week highs
lod – Low of the day
nlod – New low of the day (used when a stock has broken below a previous low)
sup – Support
res – Resistance
red – A stock that is below its previous day’s close
green – A stock that is above its previous day’s close
r/g – A stock going from red to green
g/r – A stock going from green to red
pre – Pre-market trading
a/h – After-hours trading

Common chat abbreviations

afk – Away from keyboard
idk – I don’t know
iirc – If I remember correctly
imho / imo – In my (humble) opinion
ttyl – Talk to you later
bbl – Be back later
lol – Laughing out loud
pm – Private message
ty – Thank you
yw – You’re welcome


Disclosure: No positions in any stock mentioned. I will be paid to moderate TimAlerts chat based on the number of people in chat; see my terms of use for full details about my business relationships with Timothy Sykes.  This blog has a terms of use and you can find all my disclaimers and disclosures there as well; my full terms of use is incorporated by reference into this post.

A first look at auto-trading Tim Sykes using Covestor Investment Management

About a month ago I signed up for Covestor Investment Management (CV.IM). I put $10,000 into a new account at Interactive Brokers controlled by them and then signed up for that $10,000 to be auto-traded following Timothy Sykes. I mainly did this out of curiosity to see how well the trade replication worked. Please note that only Sykes’ trades in one of his two Interactive Brokers accounts are replicated by those following his strategy on CV.IM (trades in his other IB account are replicated with the CV.IM Tim Sykes Aggressive strategy, while trades in his SogoTrade and ThinkorSwim accounts are not replicated anywhere).

My biggest problem with CV.IM is that it subdivides orders and then sends those orders at two minute intervals, guaranteeing that the last shares filled will be filled long after the first shares were filled [Edit 12/10/09 see comment #7 below for an explanation from Covestor]. While this may make sense to minimize market impact for longer-term traders, it is absurd to have an order-replication algorithm that does such a thing when trying to track a day-trader of volatile stocks. Even ignoring the problems with subdividing the orders, out of 7 total trades (three round-trips), 2 had initial fills over 15 minutes after Sykes’ order was filled (the initial short on DRAM and the buy on LZB). Because of this risk of delayed replication time I must emphatically recommend against signing up with CV.IM to follow Tim Sykes or any other short term trader.

Below are my round-trip trades so far and the comparisons to where Tim Sykes made the trade and when I received an alert from his TimAlerts trade alert service. First I compare my profit margin per trade with Sykes’ profit margins:

IMGG —  Me: +14.3%
IMGG — Tim: +13.1%
Difference: +1.2% in my favor

DRAM —  Me: (8.3%)
DRAM — Tim: +5.6% (approximate)
Difference: (13.9%) to my detriment

LZB —  Me: (4.4%)
LZB — Tim: (2.0%) (approximate)
Difference: (2.4%) to my detriment

From these three trades I have lost a net of $30.78, including commissions and short stock borrow fees.

—

The first trade, IMGG, was replicated quickly:

My CV.IM account short sold 571 IMGG on 11/17/09 at  $1.645 at 9:34:40
My CV.IM account covered 571 IMGG on 11/18/09 at $1.41 at 9:36:20

Tim Sykes short sold IMGG on 11/17/09 at $1.64 and I received the TimAlert email at 9:39
He covered IMGG on 11/18/09 at $1.425 and I received the TimAlert email at 9:38

For IMGG, everything worked well and both sides of the trade were replicated quickly and almost exactly at the same price Tim Sykes trades were at.

—

The second trade, DRAM, was not replicated quickly:

My CV.IM account short sold 131 shares of DRAM at $4.28 at 12:03:07.
My CV.IM account short sold 146 more shares of DRAM at an average price of $4.53 between 13:50:19 and 13:58:34. This was submitted as four separate orders spaced 2 minutes apart on average.
My CV.IM account covered all 277 shares of DRAM at an average price of $4.746 between 9:42:18 and 9:48:26. This was submitted as four separate orders spaced 2 minutes apart on average.

Tim Sykes short sold DRAM on 11/23/09 at $4.68 and I received the TimAlert at 11:46.
He short sold more DRAM on 11/23/09 at $4.59 and I received a TimAlert (text only) circa 14:25.
Tim covered all his shares of DRAM on 11/24/09 at $4.40ish and I received a TimAlert email at 9:47.

For DRAM, the first short trade was over 17 minutes after the TimAlert (so probably just about 20 minutes after Sykes actually made the trade). It was also at a price over 8% lower than Sykes’ trade. Because I do not have adequate records of when I received the second short alert, I cannot say how close the first trade at CV.IM was to it. However, there was still 8 minutes between first and last fill on the subdivided short orders. The cover orders began before I received the TimAlert, but the fills on the buy to cover orders were still over 7% higher than Sykes’ cover.

—

The third trade, LZB, was not replicated quickly:

My CV.IM account bought 123 shares of LZB on 12/8/09 at an average price of $10.125 between 15:24:18 and 15:40:28. This was submitted as five separate orders spaced 3 minutes apart on average.
MY CV.IM account sold those 123 shares of LZB on 12/9/09 at an average price of $9.761 between 9:52:15 and 10:00:16. This was submitted as five separate orders spaced 2 minutes apart on average.

Tim Sykes bought LZB on 12/8/09 at $10.00 and I received the TimAlert email at 15:06.
He sold LZB on 12/9/09 at $9.80ish and I received the TimAlert email at 9:55.

For LZB, even the initial buy order from CV.IM came 25 minutes after Tim Sykes bought and 18 minutes after I received the TimAlert. The fills on the sell were better, with the initial fills beating the TimAlert, but because of the spacing of the subdivided sell orders, many of the shares were not sold until after the TimAlert was received.

—

Here are the details from each of my trades copied from my Interactive Brokers activity statement:

Symbol Date/Time Exchange Quantity T. Price C. Price T. Amount Comm/Tax Basis Realized P/L MTM P/L Code
Stocks
USD
DRAM 2009-11-23, 12:03:07 – -131 4.2800 4.4800 -560.68 -1.00 -559.68 0.00 -26.20 O
DRAM 2009-11-23, 13:50:19 – -57 4.5900 4.4800 -261.63 -1.00 -260.63 0.00 6.27 O
DRAM 2009-11-23, 13:52:35 – -39 4.5900 4.4800 -179.01 -1.00 -178.01 0.00 4.29 O
DRAM 2009-11-23, 13:56:59 – -28 4.4300 4.4800 -124.04 -1.00 -123.04 0.00 -1.40 O
DRAM 2009-11-23, 13:58:34 – -22 4.4000 4.4800 -96.80 -1.00 -95.80 0.00 -1.76 O
DRAM 2009-11-24, 09:42:18 – 57 4.5750 5.3900 260.78 -1.00 243.52 -18.25 46.46 ML;C
DRAM 2009-11-24, 09:44:52 – 11 4.6900 5.3900 51.59 -1.00 47.00 -5.59 7.70 ML;C
DRAM 2009-11-24, 09:46:23 – 5 4.6400 5.3900 23.20 -1.00 21.36 -2.84 3.75 ML;C
DRAM 2009-11-24, 09:48:26 – 204 4.799608 5.3900 979.12 -1.02 905.28 -74.86 120.44 P;ML;C
Total DRAM 0 92.53 -9.02 0.00 -101.54 159.54
IMGG 2009-11-17, 09:34:40 – -571 1.6450 1.4850 -939.30 -2.86 -936.44 0.00 91.36 O
IMGG 2009-11-18, 09:36:20 – 571 1.4100 1.2100 805.11 -2.86 936.44 128.47 -114.20 ML;C
Total IMGG 0 -134.18 -5.72 0.00 128.47 -22.84
LZB 2009-12-08, 15:24:18 – 22 10.1400 10.1100 223.08 -1.00 224.08 0.00 -0.66 O
LZB 2009-12-08, 15:26:17 – 22 10.1300 10.1100 222.86 -1.00 223.86 0.00 -0.44 O
LZB 2009-12-08, 15:28:14 – 17 10.1300 10.1100 172.21 -1.00 173.21 0.00 -0.34 O
LZB 2009-12-08, 15:36:14 – 11 10.1000 10.1100 111.10 -1.00 112.10 0.00 0.11 O
LZB 2009-12-08, 15:40:28 – 51 10.1200 10.1100 516.12 -1.00 517.12 0.00 -0.51 O
LZB 2009-12-09, 09:52:15 – -5 9.8200 9.8700 -49.10 -1.00 -50.95 -2.85 -0.25 ML;C
LZB 2009-12-09, 09:54:16 – -5 9.8200 9.8700 -49.10 -1.00 -50.95 -2.85 -0.25 ML;C
LZB 2009-12-09, 09:56:17 – -5 9.7900 9.8700 -48.95 -1.00 -50.95 -3.00 -0.40 ML;C
LZB 2009-12-09, 09:58:19 – -97 9.7600 9.8700 -946.72 -1.00 -985.98 -40.26 -10.67 ML;C
LZB 2009-12-09, 10:00:16 – -11 9.7000 9.8700 -106.70 -1.00 -111.54 -5.84 -1.87 ML;C
Total LZB 0 44.80 -10.00 0.00 -54.80 -15.28
Total in USD 3.14 -24.74 0.00 -27.87 121.42

Disclosure: No positions in any stocks mentioned in this post. I currently have $5,200 subscribed to follow Tim Sykes at CV.IM. I receive a commission for every DVD or TimAlerts subscription bought through my affiliate link to Sykes’ web store. To see more details on my relationship with Sykes, please see my disclosures. I have a disclosure policy and you can find all my disclaimers there as well; those disclosures & disclaimers are incorporated by reference into this post.

Interactive Brokers brings the stock loan marketplace to the independent trader

If you trade with Interactive Brokers and have over $100,000 in your account, read on, because Interactive Brokers just made it easier to short sell. If not, tough luck, although IB still has great short stock availability. See my previous tutorial on how to borrows shares of stock to short different brokers.

First, if you have over $100,000 at IB and do not have portfolio margin, you will have to sign up for it to access IB’s new stock borrowing system. Traders with under $100,000 in equity are not eligible for portfolio margin.

Interactive Brokers just unveiled access to the AQS stock loan marketplace. This allows short sellers to borrow shares directly from stock lenders at auctions that occur every 15 minutes throughout the trading day (from 6:45am until 2:45pm EST), bypassing the standard, opaque broker to broker share lending market. Short sellers can see exactly what interest rate they will pay for hard to borrow shares and once share are borrowed they can be shorted whenever, allowing the short seller with foresight to borrow shares in anticipation of selling them short later in the day or the next day. The shares remain borrowed until the short seller returns the shares or until the lender recalls the share. I am not sure whether the shares can be shorted, covered, and then re-shorted throughout the day.

I did not learn of this new system until Friday night after the market closed, so I have not been able to test it. I did try different symbols in the system and it appears that OTC BB stocks are not supported. Some Nasdaq smallcap stocks were not available, while others were. I will be testing out the system by borrowing some shares Monday; Tuesday I will send those on my email list (subscribe using the box on the right hand side of this page) a video tutorial of how to set this feature up and how to use it.

If you wish to try to figure out the stock lending system on your own, here are the directions. The stock lending system integrates perfectly with TWS, IB’s desktop software; I do not believe that it is available to the weirdos who use IB’s web trading (you know who you are, Tim Sykes).

Also note that while I and most of my readers love short selling, those of you who are long-term investors (particularly those of you who are stupid enough to own heavily-shorted crap companies like OSTK) can make money by lending your shares using the AQS system.

Here is an image of the stock borrow page; it is confusing and complicated so I again recommend signing up to my email list so that you can see the video I will make of me using the system Monday.
stock_loan_tws

See this video I recorded as I tried to use the AQS stock borrow/loan marketplace.

Disclosure: No positions in any stocks mentioned in this post. I use and love Interactive Brokers, although their customer service is horrid. 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.

How the NYSE and SEC abet stock fraud by limiting short selling of penny stocks

This is a classic trading post from my investing blog, GoodeValue.com.

I’ve been going over Regulation T (Reg T; you can see it in its full glory here), which is the SEC rule that governs margin loans, as well as the NYSE margin rules for margin accounts. And if I were designing regulations to increase stock fraud, I could think of no better way to do it.

Why is this? The margin requirements for short selling stocks are greater than for buying stocks, at least for cheap stocks (below $2.50 in value). Here is how it works for stocks above $5. You will note the nice symmetry between short and long margin requirements. While the margin requirement for buying stocks is 50%, the requirement for short-selling stocks is 150%. Here’s an example: if I buy a stock for $10 per share (let’s say 100 shares), I only need to put up $500, or half the total value of the stock. If I want to sell the same stock short, I need to put up $500 (plus the $1000 in proceeds from the sale of the borrowed stock). So there is symmetry between short and long margin requirements. (Investopedia has an in-depth explanation of this). If the price of a stock is below $5, there is no margin allowed on either long or short sales. So if I want to buy 100 shares of a stock at $3, I must have $300 in cash (or margin from a higher-priced stock). If I want to short sell the same stock I would likewise need the same amount of cash or margin available.

The symmetry between long and short breaks down, however, with stocks under $2.50 per share. The NYSE has a rule (rule 431 (c) 2) that requires $2.50 in cash or margin for every stock below $2.50 per share sold short. A comparable rule does not exist for long positions. So if I want to buy 1000 shares of a penny stock trading at $0.40, I need $400 in cash or margin ability from marginable stocks. But if I want to short 1000 shares of a $0.40 stock I need $2,500 in cash or margin. So any time someone shorts a stock under $2.50, they have negative leverage: the position value ($400) is but a fraction of the money needed to hold the position ($2,500). For this reason, very few short sellers sell short cheap stocks. Fraudulent companies or worthless shell companies trade at absurd valuations because their share prices are too low to attract short sellers.

Most of the financial fraud in public companies nowadays is with penny stocks. The reason is because short sellers cannot afford to sell short cheap stocks. If the NYSE $2.50 rule were eliminated, more short sellers would be willing to take short positions in overvalued penny stocks. Pump and dump scams would not be as effective because short sellers like myself would easily be able to short sell the pumped-up stocks earlier, at cheaper prices, reducing the harm to the poor rubes who fall for such scams.

Removing the $2.50 rule would increase the amount of information available about penny stocks as short sellers like myself would write critically about the overvalued stocks they sold short. This would give the poor rubes a chance to learn the truth about the worthless stock they were considering buying and this would further reduce the success of pump and dump scams.

Please, contact the NYSE and urge them to stop supporting scammers and fraudsters. Urge them to remove the $2.50 requirement.

Disclosure: I love short-selling penny stocks.