I liked this chapter overall, tons of good stuff about risk to reward and trade plans. I have a certain fetish for the discussion of trade plans I admit. It’s something that is so often ignored or overlooked. Everyone will brag about profits or sometimes and I do mean sometimes, mention a loss. But seldom is it mentioned what the thought process was going into the trade. And how, where, when, and why you took that profit or loss.
Sykes hammers on and on about planning your risk to reward ratio. Of course it’s all just guesstimation, but something that wipes out traders more than anything in my opinion is making a trade because a stock is moving but never really spending a few moments to plan out what you are going to do when you have a loss or a profit. This can never be reinforced enough.
The rest of the chapter is what I would consider Short Selling 090. It is a pretty basic introduction but short selling is confusing as hell to most traders so its good that he takes a basic approach. Notice the notes below Tim covers a TON of tickers and the potential for taking the “meat of the move” while shorting POS and/or promoted stocks.
In summary a very solid chapter especially for new traders and guys interested in the potential of short selling. Not to mention great content on trade plans.
$WLOCD – Rest Stop Short trade – 50% drop
Discussion of panic selling in pump and dumps
$HEMP – Short sell
Discussion of potential in shorting junk stocks, when they crack they crack hard.
Q tickers – bankrupt companies
You don’t need to be an “amazing trader” to make money in penny stocks.
Catch the meat of the move but take profits
Stair stepper grind up then crack and gap down short.
More on $FMNA and $FMCC
Good discussion of not trying to find the top, let them fade and short against previous highs.
Promotion stocks discussion, doesnt really exist much any more but decent lessons
Funny background on pump of $CLRH
-unrestricted share selling/dumping
Good newbie explanation of “how a pump and dump works”
R in SSS
R: Risk/Reward 1-20 on scale
You have to plan and estimate the risk and reward TRADE PLAN
Always plan for being wrong. Do not be a deer in the headlights
Always stick to you plan, breaking your plan ALWAYS increases losses.
Discussion of market maker stop loss sweeping.
You do not know the risk and reward but you have to estimate and create a plan. Easiest way is around support and resistance levels.
Scenarios of risk and reward based on support an resistance
Examples of calculating risk to reward and ratios
So few traders ever concretely think about trade plans. HAVE TO HAVE it before the trade.
-No plan no trade
Risk is always minimal as long as you cut losses quickly.
Avoid trading earnings – gambling
Never trade to get back to even. Always cut losses quickly.
Time comes into factor. In momentum stocks usually if the move doesnt happen quickly it won’t happen.
Trade crazy stocks but be quick.
You can’t predict news/announcemnts halts etc
No legit company sends a promotional mailer
Always keep an eye on markets.
Recap of some really old gap plays.
Below Deck recap – $EKSO
stockstotrade.com STT reference
$PRGN – Low float super nova
More discussion of low float trend