It’s already been 2 years and at times it can be a costly, gut wrenching, exhilarating, and questionable lesson. I’ve made money and lost money. Fortunately, I’m on the positive side of things because I had market experience before trading lower priced stocks. I was well schooled in indicators and patterns before coming on board here but there was and still is a lot to learn. I’m not in the chat-room as much anymore because I am simply too focused on what is going on in the markets with the limited time I have to trade. I don’t trade full time and the majority of time I only have one 19” monitor to use. I was recently using IB as a broker and TOS for charts so positioning and moving windows between these two platforms for charts and order management can be a pain in the ass with one monitor. So, I recently went back to TOS for the sole reason of having my chart and order entry/management all on one screen. Yes, I know you can do this in IB’s TWS but TOS has the best charts and customization that I need so I’ll be there until I do this full time. My main trading station at home has four monitors but only used about once a week. I know TOS has fewer shares to short but they do have them and you can call for borrows. That forces me to be biased on the long side but I can deal with that no problem.
So a few words to other struggling or just starting out trading that I have learned (learning) to pass on in no particular order…
1) Have a watchlist in place before the market opens. Yes, things happen pre-market and those tickers can be part of your day but have those tickers in place. Don’t count on anyone else to do this for you.
2) Follow your watchlist and let the trade come to you. Many times your tickers can be dead in the water and do nothing for a while before they get moving. Sometimes they simply don’t move enough and the trade never develops. This is why it is important to keep the previous day(s) runners on your list. The hype or real-news can last more than one day or days. As long as that ticker is getting considerable volume during the day there can be an opportunity for an entry but not necessarily right at the open. Wait for it.
3) The opening is the most volatile and dangerous time to trade. Just because there is a spike up in price does not mean to buy right there. There are several circumstances or variables that need to be answered before entering on the open and you have to have those answered all in a very short amount of time. This takes patience, studying, and an iron stomach to learn. Lots of money can be made and lost right at the open. Many traders get hammered at the open because of that initial spike that turns right around and then tanks. Get ready for humiliation if you are new to all of this.
4) Sell into strength. This is one of the most valuable things I have learned aside from cutting losses short which is a given. These low priced low float stocks are packed with emotion. The range of some of these can be $1.00 in a single minute bar sometimes and when we think of looking for 25 or 50 cent on a move on an entire position that can happen in a few seconds what does that tell you about this stock with that kind of range? VOLATILITY! Know your position size and know what the stock is capable of. If the stock has a 40 or 50 cent range per bar can your position, account size, and stomach handle seeing your position up 60 cents then down 40 cents a few seconds later even though you are correct in the trade? Even worse, up $1.00 then up on 20 cents in the same bar? This is why you need to sell into strength and bank your money. You can be up $1.00 then down $1.00 very fast. Recognize the volatility and know how big you should go in.
If you enter with 2000 shares and the stock moves 5 % or 10% quick take out 1500 shares there and let the other 500 ride a little more, or 1000 there and ride the other 1000….whatever. Either way, take the majority of your shares out into the move up and then start scaling out. Yes, there is always the possibility of missing the larger $ETRM or $REN like move so that is where holding on to maybe 25% of your initial entry position at breakeven or very small loss per that 25% position that takes very little away from the other 75% gain, and letting that run and work the trend.
The other day someone posted they got in a certain stock at .50 and sold too soon at .55...NO YOU DIDN'T. That is a 10% move on the stock! Think about it...it's about % with everything. The move, your entry size, profit targets, gains, losses, etc.
BUILD YOUR ACCOUNT WITH OCCASIONAL DOUBLES INTO THE GAP AND MAJORITY LINE DRIVE SINGLES UP THE MIDDLE. This equates to selling into strength.
HAVE YOUR PLAN IN PLACE BEFORE THE TRADE: PROFIT AND LOSS TARGETS SHOULD BE KNOWN BEFORE YOU CLICK THE MOUSE.
It can be very difficult to exit a position even when you are up because the price is falling too fast. Your sell limit order never gets hit because price is coming down too quick. You modify your order with a lower limit, not just once, but maybe a few times and that 10% gain on the move of that stock is now at break even or even a loss. BANK YOUR MONEY!
So how does letting profits run and selling into strength work together? Difficult mentality here. We all want to get in the larger move and hold but you never know how far a stock is going to run. This is why it is always a good idea to take profits along the way and hold a smaller % in case it does run. Yes, this is easier to do with a larger account so it comes down to the same answer: BANK YOUR MONEY! Grow your account first and worry about riding the big waves later.
THE MARKETS ARE NOT GOING ANYWHERE…These runs will happen again, and again and again.
What does that mean? PATIENCE.
5) Never assume something is going to happen. Don’t think that just because price is approaching a support or resistance area that price will break through it. So what does this mean? It means don’t buy at the top or sell at the bottom. Get in before the move to that area. How do you do this? Well, you were supposed to be following your tickers anyway so you saw this happening so there you go. Set alerts at price levels if you can’t monitor things all the time. Price stuck in a range can trap a lot of people and market makers love to take your money here. Wait for the big volume move to at least happen and price exits the area. Trade safe or even better, stop watching it unless you are already in a position before it got stuck in a range.
6) Yes, the PDT sucks. But, it keeps you grounded and teaches you discipline. You might blow through an account or two to learn this but nothing is free. Learning to trade stocks can be a costly lesson. Even so, once above the 25K cash account balance you still need all the same discipline and patience that you had before you got there. Don’t treat your account like a slot machine. Treat it as your business that you want to grow and maintain for a long time.
7) Earnings winners can be the best plays to focus on. However, just because a low float low priced stock put in good earnings and revenue numbers does not mean that it will run. A lot of these stocks are pure junk and when one analyst that graduated from Armpit University gives it a recommendation based on these earnings numbers don’t expect a whole lot…if anything. Especially those that have very low volume of like 5K shares a day..worthless. Now, anything can happen so yes, you can watch them for a little while just in case. Look at those previous low priced low float stocks that have consistent volume of a few hundred thousand per day. Too low to trade on a daily basis but I have noticed that these are more apt to making a move up on good e/r #’s than those with crap volume. See how they reacted in the past on good #’s and go from there. Especially note previous resistance levels on these. Earnings get stocks noticed so the more people that follow them then the more people see the same resistance levels and could buy on the break = big volume coming in for a potential move up that could last for several days or even weeks.
8) Cutting losses quick. Hope and praying will not turn a position around for you. There is no religion or faith tied in with your position. I have exited too soon on weakness sometimes but that is because I was in too big and got psyched out. Smaller positions are smarter to be able to withstand a move down after an initial entry. Trade smart.
9) Research your trade before and after the trade. Why did you get in? Why did you get out? $STUDY $STUDY $STUDY $STUDY
10) Go with the high volume runners. That should be a given. Don’t think that just because you found the perfect setup in a scan or chatroom post somewhere means the stock will move. Volume is the key. No volume no trade. And, don’t think the volume will come in after your entry either.
11) Don’t fight the trend. If a stock is screaming up and getting consistent volume don’t try to pick the top and enter a short. Yes, everything that goes up must come down but this is where the herd mentality can work in your favor. Everyone else is doing it so why shouldn’t I?...that is sort of correct but try to follow the herd as soon as you can, just wait for your place in line. What? In other words, wait for some kind of pullback and look for an entry, the sooner the better. When you spot the largest block of selling in a few successive volume bars note that can signal a top or temporary top in the trend. Be cautious entering after these large selling areas. Study those volume patterns.
12) The market is open 24 hours a day 7 days a week. How? If you take this seriously then some facet of the markets should be on your mind every day. You can do this by studying charts, reviewing trades, scans, etc? Just don’t let the markets and the prospect of making money take over your life. You are still in school? Do your homework. Married with kids? Take care of your family and leaking roof.
The markets aren’t going anywhere. Live life and take care of what is important first.