Really starting to get more into the nitty gritty of what the SSS is and how to apply it to penny stocks. In this chapter Sykes goes over the “E” in PREPARE fully and starts explaining the second “P”. The E is for “Ease of Entry/Exit” and the P is for “Past Performance”. This is good info because he explains the concept of “former runners” and the idea that many tickers repeat their runs over and over. Something newer traders may not realize is traders will pile into tickers they recognize. 99.999999% of momentum traders are creatures of habit. Whether they be long or short biased, when a familiar ticker shows up on scans there is a good chance there will be lots of activity in that stock that day.
Jumping back to the “E” this is why Tim repeats himself over and over that you should only trade the stocks with volume that day. And also why there is value in filtering your list down to only the percentage gainers. If there is no volume TODAY, do not trade it. You do of course need to think about the average daily trading volume, but we are day traders or short term swing traders, we only care about what is happening today and at most this week. I know so many new traders that get “trapped” in a low volume stock that they recognized a pattern in. Sure pattern recognition is very valuable and part of your growing process but the pattern is worthless unless you can get in and out when YOU want to.
VERY good chapter, one of the best so far. Good content and as I mentioned in the opening sentence this part was 100% trading related content. If you are new this is a solid chapter to rewatch. Also it’s the first appearance of the “bad sushi” analogy. I’ve known Sykes a long time and he loves analogies, though most of the ones he makes are misses, the “day old sushi and cheap stocks” is one of his best!
E: East of Entry/Exit (1-10)
Daily trading volume and position size
Speed of movement, be sized and prepared for slippage / implication of chasing
Borrow availability, SSR
Size needs to be related to daily volume – THAT DAY not average
Avoid being more than 1% of daily trading volume
Most think small amounts are a handicap, they can actually be an advantage
Find your niche
Shorting is difficult.
-Lots of details and explanation of shorting
You must consider how hard it is to short, implications and hassles
-You can waste a lot of time watching and researching a ticker then find out there are no borrows
Buy ins – T+3
P: Past Performance/History of Running (1-10)
-Long term chart – MTF
-Crow – long time chart death, most spikes will get sold into
-Same with Shorts, often pile into any spike on the short side
-Discussion of tax loss selling at end of year
-Look for past volatility
-Momentum chasers come in, short sellers can came in Traders remember tickers
-Past performance guides traders to be better prepared for current and future spikes
-Track shares outstanding and float
-Calculate market cap – Shares outstanding * stock price
-Buying low float runners is solid strategy “supply and demand”
-Sykes considers low float < 5M
-Watch market cap in relation to float
-Sellers will come in if valuation is too high
-good reason to watch big % gainers only
-More discussion of low floaters
-Trading low floaters is fine, but hard and you have to be VERY fast.
-Risk to reward, recognize climate of shorting versus buying
-big movers tend to move big again, slow movers tend move slow
-avoid boring stocks
-Discount sushi analogy
-Reverse Split description and detail – explanation