Part time penny stocks workflow – Rule 1 – Get up Early #PTPS

In this post I would like to cover what I think to be one of the most important methods to follow to be a successful trader. While in my mind it is important to every trader, but particularly if you are a part timer there is immense value in getting up early on a consistent basis.

I have found that most traders particularly part timers prefer to stay up late and research then drag themselves out of bed 10 minutes before the market open and expect to be prepared and ready to trade. I’m sure I will get countless counter arguments but I think that it is truly idiotic and naive to expect to be able to trade successfully in the morning and even throughout the day without some sort of consistency and routine based on a consistent rise time.

One of the biggest reasons I think getting up early consistently is important to a trader is due to the fact that trading successfully demands intense discipline. If you can’t drag your lazy ass out of bed early and consistently how do you expect to apply any sort of consistent discipline to your trading? Gamblers sleep in and refuse to put in the work away from the table, traders get up and prepare and approach the market with a plan.

By getting up early and implementing a consistent workflow you can approach the market confident and with your thoughts and mindset locked in. I’ve found days that I do not get up on time and rush through my research, or worse yet complete no research and expect to trade only on the information available at that instant, I will consistently enter “random” bad trades. To truly be prepared I believe a routine needs to be created, and by refining and following this routine, you will become more consistent, more confident and more importantly more patient. I have NEVER entered a “random” trade on days I rose at 5AM and completed my entire workflow routine. At times it’s amazing the heightened level of patience on fully prepared days. Of course that increased level of patience will invariably create days of extremely low trade volume. And on some days no trades whatsoever. I will cover “not trading” extensively in another chapter, but at this point just know that “not trading” is the most powerful tool of all to the part timer!

Considering the lack of interruptions the early morning hours are also greatly valuable to research and prepare. Since I’m assuming you have a day job and family and friends, you are subject to 100’s of distractions in the evening. One thing I can count on is barring total emergency the hours of 5AM to 7AM are mine and mine alone. No phone calls, no emails, no interruptions. Not only does this allow you to focus, it allows you to truly learn and get your thoughts in order. It also allows you to work through your preparation process in a much quicker and more efficient fashion. What could have been 2 hours of research in the evening could be potentially reduced to one hour or less in the morning. Not only are you free from interruptions, you are hopefully free from scheduling conflicts as well. The part time trader will have numerous evening commitments that could potentially sidetrack research time. Family, friends, work, and hobbies should be utilizing your evening hours NOT the fucking market.

Another chapter will cover the addictiveness of the market. But at this point I will press the point that by disconnecting from the market in the evening you will be far less crackheaded about your desire to follow the market. Spend the time where it really counts, with your family, friends or learning and hobbies. Don’t waste 1/3 of your day looking at flashing green and red numbers.

The last and in my mind most important aspect of rising early and sticking to a routine is the confidence and cockiness felt by knowing you got up early and prepared while 99% of your competition in the land of penny stocks, slept in, is hungover, and probably ate fifteen donuts for breakfast. This could be simply my personality, but I have to believe in the world of trading it is valuable to know subconsciously that you are prepared and better then the other guy. On days I follow my routine to a “T” I am ready to kick the asses of every lazy penny stocker out there, and over and over those days are by far my most profitable. The only days they are not profitable is when I don’t trade. The likelehood of taking a loss can only be reduced by preparing not eliminated, but again in my years of experience the potential for making a bad trade is extremely reduced by preparation.

Tomorrow I will detail my actual workflow routine after rising and preparing.

To the reader, please keep in mind this is in essence a rough draft for my trading book. Please critique and comment, while the writing is a little out of sorts and more or less stream of consciousness I have decided to post the rough drafts here and use this blog as a workspace for editing. I certainly hope the final product will be much better structured and more clean.

Thanks

Death of the watchlist and a slightly different direction, I may be stopping, but don’t quit creating YOUR lists!

First off if, you really want 10 stock watch lists everyday, just quit being cheap and buy Tim Sykes “Tim Alerts” package here at my affiliate link. His lists are almost always better then mine, besides everything I learned about creating a list I learned from him.

On to the meat of the this article. I’ve decided to stop posting multi stock daily watch lists and take a different direction with the finance related posts on this blog. I chose to do this for many reasons. First being that after building watch lists and creating a solid and fast workflow it gets somewhat tedious to add in comments to each ticker and try and make them interesting and or funny. Most of the stocks I play are based purely on price action and there is quite often no story behind the play. And you can only say “This company is  a real POS, financials are shit, going back to 50 cents.” so many times before it becomes boring. I will still build the lists and will post them in a link similar to this:

Full list from Yahoo Finance

I just will not break every play out into a chart with comments. So the watch list will still be there, again since I will still be building my own list on a daily basis, the due diligence is done. I’m just bored with cutting and pasting charts and writing pointless and somewhat worthless comments.

So while I will not have a wallpaper of charts I would like to try and start featuring and concentrating on one chart and or stock per day. I think I can come up with relevant commentary while focusing on a single stock as opposed to trying to come up with comments on 10 or more. I’ve seen this done on other stock sites and seem to find myself returning to the sites that use this more focused strategy. And really the only thing I am losing is being able to say, “Wow 8 out of my 10 short picks went down yesterday.” Oh well 4 years later those bragging rights have yet to make me a dollar…

The second reason I have taken this approach is to try and build and refine my writing chops further. I’ve found over the last years that while writing brief comments on a watchlist is helpful from a habit inducing standpoint it really has no great value in creating content. Especially when discussing day trader timeframe plays, the freshness and value of the content expires about an hour afrter the post is published. Of course I don’t expect my blog posts to end up under  a glass case in the Library of Congress, I would however like to try and create content with more staying power and usefulness, weeks, months or who knows years later. Unless you are the most desperate degenerate stock trader in the world there is no real value to the archives of my finance related posts. I would like to try and change that.

Lastly, as I’ve mentioned before, I have decided to use this blog as a rough draft or “workspace” for my Part Time Pennystocking ebook project. And while I’ve had good intentions of making posts related to the book, I’m 3 weeks in and already 2 weeks behind. This reason was most likely the watershed moment in my deciding to dump the watchlists. Considering I already get up at 5AM and typically go to bed around 11PM, there are only so many hours in a day to carve out for a writing project. I’ve decided that the early morning hours will be spent writing the book as opposed to spending time writing watchlists. Addition by subtraction of other tasks in essence.

I would also like to try and engage my audience more, please ask questions or post comments. I may not be the greatest penny stocker in the world, but I’ve learned a lot over the years and am very willing to help. It would also be very useful to the book project to see what questions new and or other part time traders have.

While I’ve missed plenty of days posting watchlists, I already miss it to a certain extent. I enjoy the digging and the research side of it, and while I think most bloggers quit primarily because of the tedium of it, and I obviously listed that cause too. I am not moving away from them because of boredom, it is strictly a time issue. And as I mentioned in the first sentence, at times I really feel I’m just duplicating the effort expended by Sykes. Why spend an hour writing a post that mirrors his almost exactly.

But I will vigorously defend the idea of  writing out and thinking more deeply about a watchlist. It has been very helpful and constructive to me over the years and I’m glad I’ve done it. Its just the skill can only be refined to much. I think I’m wasting cognitive surplus on attempting to write witty comments based on a handful of penny stocks every day. But for the new trader or the learning trader I think it is a IMMENSELY valuable tool to defining your style and sticking to your trading rules. Even if you have no desire to publish a watchlist publicly due to shyness or concerns about your writing etc. I think every trader should fire up notepad and make comments on the stocks he is considering trading for the day. Even if you don’t even save the file after your done. The simple process of forcing yourself to write down what you are thinking will make you a better and more prepared trader. Ninety percent of my losing trades have been trades that I just randomly picked out of the air during the day and never wrote down or took the time to analyze why and how I was trading them.

So while I’m stoping watchlists, if you haven’t started or have intermittently created them, get back on track and put your thoughts down on paper! It will surely make you a better trader!

Ignore Everybody – Part 2 – Message Boards/Twitter/Emails etc $$

In this section of ignore everybody I will explore some of the other frequently touted sources of penny stock information and how they all approach borderline worthlessness as well.

Message boards:

Stock message boards are all over the internet, the biggest most frequently posted to board would probably be Yahoo Finance. But there are literally thousands and thousands of boards and forums across the internet. While like stock chat you will be occasionally able to extract some useful and tradable info, the potential for finding these diamonds in the rough is borderline impossible.

So why are there so many boards out there? And why do so many people post to them on a regular basis? In my opinion the greatest majority of posts are created by unsure traders looking to reinforce their confirmation bias.

Confirmation bias (also called confirmatory bias or myside bias) is a tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true”

So many stock traders particularly penny stock traders, get themselves into the worst and most idiotic trading positions imaginable. Then after rushing into a hot tip they receive from their brother, uncle, or local oil change technician, they soon find themselves under water. What is the next step for this trader? Research of course, while an experienced and profitable trader would know to do this due diligence beforehand, that is hard and time consuming! Penny stock traders prefer the easy way out. And frequently they find message boards the easiest way to find information on their particular ticker. Its much easier to read one sentence posts like “This stock is going to explode”, or “Big contract coming”. Then it is to really dig and research SEC filings, or financial reports, or in my mind one of the strongest ways to evaluate a penny stock, hard and in depth technical analysis.

I’m not sure why but stock message boards are notorious for attempts by traders to create self fulfilling prophecies. While most people would refer to it as “pumping” its pretty difficult for any poster to really make a stock do anything based on message boards posts. Of course there have been examples of this working in isolated circumstances, particularly Jonathan Lebed. But message board posters seem to think that by posting and reposting the same links to 2 year old press releases, or posting rumors and conjecture they can somehow make a bad company turn itself around. Do not do this, do not believe ANYTHING in a message board unless a link is made to a credible news source. Then FOLLOW the link and read the article, do not take the posters opinion or believe he has any idea of what is contained in the linked article.

So should the penny stock trader completely ignore message boards? I reply with a resounding NO! But much like what was detailed in the previous section on stock chat, all postings need to be taken with an enormous grain of salt.

How do I recommend message boards should be utilized? With a contrarian sense of analysis of course! This will be far from the first time that I will mention doing the exact opposite of the herd. Being a contrarian can be effective in all sorts of business ventures and particularly stock trading. But nowhere is contrarianism so powerful as in the realm of penny stocks. Remember penny stock land is populated by three tribes.

The largest is idiots. This tribe makes up roughly 75% of the population. They are by far the largest and most vocal segment of the population. Hence the reason for a heavy dose of contrarianism. I don’t care what venture you are pursuing, if 75% of the segment is driven and populated by idiots, it is a pretty sound strategy to do the opposite. Penny stock traders and lemmings are so similar it is scary.

The second largest portion of the penny stock population is crooks and promoters. While promoters are not always criminals they are close enough to batched together in my book. Yeah there are Level 1 prisons and Level 5 prisons, but they are all still criminals, I see no reason to try and rate their stinkyness for the purpose of this analogy. These bastards make up roughly 20% of the population. The biggest dilemma is trying to spot and locate them. It is near impossible, much like a organized crime syndicate they are very effective at disguising their activities. Although tough to substantiate there is indeed an effective model for tracking them. Just assume that any and all promoters and marketers of penny stocks are shady characters. Sorry to the one out of a million “honest” stock promoters and marketers out there. But if it walks like a duck and talks like a duck, its probably a duck. If you pump penny stocks and send emails and faxes about the latest and greatest 50 cent stock, you are probably already a criminal or about 2 months away from becoming one.

So who makes up the last 5% of the population? And where do I fit in, and where do I hope the reader of this ends up fitting in? The camp that knows penny stocks are corrupt and knows they will never be cleaned up and has decided to profit on that fact! While there are hundreds of trading systems and educational product sellers who will tell you great profits can be reached from buying penny stocks. I have no firm belief in that strategy working out over time. Plus it is simply too hard. Why not profit based on going against 95% of the market who is either foolish or corrupt? I just realized worded that way it almost sounds noble to short promoted and over hyped penny stocks perhaps it is, and this point will be discussed in a later chapter!

So in my mind the best way to work against the heard is to proactively ignore and do the exact opposite of the majority of posts in message boards. If 99 out of 100 posts in a forum recommend buying a stock that has gone from $1 to $4 in a couple days, short it! Will this work all the time, not at all. Will it work more often then not, yes. Of course I have greatly over simplified the process for the sake of this post, but at times it really can be that easy.

I have more or less reached the point I wanted to get across in this section and just realized I did forget to mention twitter. Although all of the above also applies to twitter I would like to point a few things out about twitter being more or less message boards 2.0

You will quite frequently hear that twitter is this great social tool for penny stocks and how the information is “purer” and more real somehow since it is created by real traders and real people. It is entirely baffling to me how anyone could make this argument? Does twitter somehow stop promoters from creating accounts? Can a promoter or pumper not create a bunch of random accounts and post under them? Yes, unlike message boards there is MUCH less anonymity on twitter, since anyone can look at your history of tweets and followers etc. But again most part time traders are not willing to do that due diligence and crooks will always adapt to the latest system, thats why they are crooks!

But here is the ultimate crux of twitter, even if the posters have 100% pure attention, remember the greatest segment of the penny stock population is IDIOTS! Whether or not they mean well, has no bearing on whether you should listen to them. Most have done ZERO research or what DD they have done is borderline worthless and much like the message board posters they are just trying to defend the terrible positions they have gotten themselves into.

In the next section I will detail how to digest the main stream media and whether it is effective to “trade the news”.

Watchlist 7/26/2010 – Boring list to follow up on a boring week.

No trades and nothing worth watching towards the end of last week. Boredom looks to continue this week. I managed to get my ass stuck in ARNA by working on the go all day Friday. Dumb. Hopefully it was just a lame Friday afternoon short squeeze but the stock has gone from looking pretty weak to now looking strong. Something a part time trader should NEVER do is get into a position when you can’t pay it full attention. That is normally one of my primary trading rules. Hmm guess I broke that one eh? Fucking stupid… Futures were up when I went to bed but now this morning they are fading, annoying. It would be nice if the market would get decisive and go one way and stick to it instead of this chop. Well here are five stocks barely worth watching.

Full list from Yahoo Finance

ARNA

I’ve said enough already, now I just need to decide to hold until their drug is proven worthless and continue to get squeezed or just cut and run. Still a short in my opinion, but not right now based on the chart. SHORT

BVX

Shady looking biotech, lame little spike, but I see no reason for it. SHORT

DSTI

A few shares out there to short, I’m tempted to take them into Friday’s spike. Good chance this stock ends up right back at a $1. SHORT

INFN

Ton’s of positive news, big revenue gains, analyst upgrades etc. Somewhat “real” company so I will probably just watch, but curious to see where this big spike goes. SHORT

SILA

I’ve been watching this for a week and would really like to short. But everyday I hesitate and the borrows dry up at IB. They are back again today, I just need to get decisive and enter a position. This stock will almost certainly tank 30% soon. Just a bummer its right at a dollar, I would like to see it run more before shorting. SHORT

Why stock chat is like hard liquor, good in moderation, TERRIBLE in excess. $$

First off lets pre qualify by stating I have no problem with booze, hell anyone who knows me will tell you I enjoy a beer quite frequently but in trying to find an analogy for my distaste of stock chat, hard liquor was the most accurate method I could find. I kept wanting to make it analogous to hard drugs, but while stock chat is annoying beyond belief and seldom useful, it is not nearly as insidious as hard drugs. Stock chat has a much more slow and gradual infiltration method that soon brings most unwitting users to their knees and penniless in the gutter. While booze doesn’t have near the completion percentage of creating personal worthlessness that stock chat does I still think its a decent comparison for the sake of a blog post and a chapter in my forth coming ebook.

That’s right I’m writing a “Part Time Pennystocking” ebook. It will probably suck and will probably be late and delayed many times, but it will happen nevertheless. Since there is a very good chance I will be presenting at Tim Sykes Pennystocking conference in Vegas in mid November I have roughly sixteen weeks to completion in order to have it ready for presentation at the conference. Ideally I will write a chapter a week ending up with roughly 10 chapters leaving me five or six weeks of editing.

This is week one and I begin with part one of the chapter “Ignore Everybody”, obviously starting with ignoring stock chat as the first section of the chapter. I may link back to this article frequently since it is the first post and details my plan. So hence the sampling of history and the outline of my “howto” on writing an ebook. Ideally I hope to accomplish two goals, one produce a shippable product, no matter how crappy and two, learn a process to further hone titles going forward, and maybe in twenty years produce something worthwhile. Since I like the idea of “open sourcing” a project like this, I will use my blog to write the book. Each chapter will be published on the blog weekly and open to comments. My thoughts are to use my target audiences comments to refine the work into the editing stage, hopefully using a mild crowd sourcing model to improve the quality of the book. While my blog is pretty low profile I do get occasional comments, and who knows maybe by creating some real content my readership will see value and increase.

Ok enough background and setup, back to the topic at hand.

While the purveyors of stock chat will constantly tell you how incredibly useful their sometimes free and most often pay service is, refuse to believe them. They are like the bottle staring at you from across the room, saying “We won’t get that drunk and hook up with some nasty skank again tonight.” While the skank and the stock chat moderator do serve purposes the lingering effects of their talents are seldom desirable. While I don’t doubt individuals have found the love of their life in the middle of a bender and gone on to live a happy and fruitful life, far more often nothing becomes of the affair but regrets. While you may find a decent alert or stock pick in chat from time to time. You will be constantly assaulted with randomness and useless information. One of my most hated parts of stock information is randomness. There will be a chapter dedicated specifically to the explosion of worthless information that creates nothing but noise and non tradable confusion.

Another disadvantage to stock chat is the “drinking buddies” scenario. This is by far the most evil and diabolical scenario presented to the foolish stock trader who wanders into a chat room. I will be the first to admit this has burned me far more then any other setup in a room. While with a little discipline a trader can ignore most random and useless ideas from individual participants, it is very difficult not to get sucked into ideas that many chat participants all start to gang up on. As in my younger days of drinking with several buddies, it is amazing how group hysteria can make normally rational young men think that standing on the roof of a moving car is a good idea! Or any other countless stupid ideas that “seemed good at the time.” with a belly full of booze and a bunch of yayhoos at your side.

So in summary, I recommend avoiding stock chat altogether except for two situations. Number one, using it simply as a tool to locate breakouts and or breakdowns. Since it is very difficult to watch all stocks with either a HOD list or screening tools, stock chat can be very effective in assisting the momentum trader in locating tickers. Investors Underground is the very best room for this, while it does not suit my style of trading if you are looking for pure momentum setups it is a solid tool for using hundreds of eyes to help you trade. Situation two is using chat to gain information about why stocks are doing what they are doing, of course this needs to be used with an enormous grain of salt, since 99% of participants in chat are fucking idiots. But the remaining 1% and the moderators are usually useful in locating news or the rational behind rapid moves. Since most moderators participate in multiple chatrooms, they can scale out into finding real info quickly. Of course this information may or may not be useful and or tradeable, but the room can find it faster then you can in most situations.

My weekly deadline for this project will be Sunday evening, while I think I got the gist across I also feel this post was greatly rushed. I will do better next time, due to an ENORMOUS project at my day job this week I was unable to get started writing until Sunday evening. And even then I was rushed due to other commitments. This will also be the last time excuses are offered up. But hey I showed the fuck up and got it done at least, what did YOU do towards your book or other creative project this week?

Please post any criticism or ideas for this post, and or suggestions for future posts. I will continue with part two of the “Ignore Everybody” chapter in the next two days. Then post part three over the weekend thereby wrapping up the entire chapter for week one.

$APPY – Another example of why I need to work on long term shorting.

Wow glad to see I shorted at $4.30’ish and covered at $3.60ish…

For whatever reason when I try to become a longer term short, I pick the most unvolatile stocks and end up getting bored. Of course holding a more volatile stock longterm can get scary as hell. I told myself not to cut and run so quick on APPY, its now over $3 under my original short.

Tough to cry when I make $1kish on it, but damn, thats sad..

Weekly Review 6/21-6/25: LEI, ETRM, LTBR, PBTH, PDO, HAUP – I HATE being a part timer..

Another painful week of non trading, so since I have no trades to recap I thought I would highlight some of the juiciest misses from the last week. Of course I have no idea why or what purpose it serves, perhaps just to keep me from losing my sanity by proving that my strategy works and is very high profit and low risk if proper money management is utilized.

Of course I’m contradicting myself to a certain extent, this recent post detailed all the reasons NOT to trade and now I’m bitching that I should have made 5-10 trades this week. Best I can do to justify this counter argument is to state that by being a part timer you will undoubtedly be confronted with stretches like this. When trades are not falling out of the sky into your lap, but they are indeed available and they will be missed from time to time. This pattern will repeat over and over for any part time trader.

Below is just a random sample of stocks I had on watch last week, yes they are cherry picked to a certain extent, but these are the only trades I considered making.

Full list from Yahoo Finance

LEI

Looked to short the rollover at $3, it fell almost a full dollar to $2.20 before bouncing.

ETRM

Would have loooved to short this midweek after a couple red candles. Had it on watch here.

LTBR

Cripes, does it get any prettier to a short seller?!??!!?

PBTH

I had this on “long term” short watch from a week or so ago, gee only $2 off its highs and still fading…

PDO

Much like PBTH I had planned on scaling into a short position, but never implemented it. Another stock off about $2 a share from where I started adding it to watchlists.

HAUP

I actually have a witness on this stock, on the day of the big spike I told my business partner. “This POS will be back to a $1.50 in a couple weeks.” It is well on its way.

Its somewhat interesting in a way, I had pretty high hopes about this post and going in, I thought it would be fun to write. Now that its done, it didn’t turn out near as interesting as I had hoped and actually has done nothing but depress me. I’ll post it, only because its done and over with, but reviewing misses its not nearly as interesting as I thought it would be.

Watchlist 5/13/2010 – Boooring week continues

This has been a week I’ve actually been happy I’ve been far to busy at work to spend time to trade aggressively. There have been plays but only high risk low reward intraday setups. And in my experience as a part timer, when I try and chase those the profits are small at best and big losses at worst. I currently have open positions in AEZS and DIVX but do not like either of them at all, and I’m rapidly starting to feel trapped.

Full list from Yahoo Finance

AEZS

Announced an early FDA approval and spiked pre market, since like a fool I wasn’t watching it pre market to cut and run, I decided to hold through the spike. I’m a bag holder at this point just hoping for a fade. Lame and stupid place to be, but thats where I am… If it goes up at all I will cut and run. Ideally earnings are announced today and are horrendous and maybe I can clear a piddly profit. I still think long term this becomes a “crow” and slowly picks down to $0.80 cents, but I will never have the patience to wait I’m afraid. SHORT

ANTS

This finally cracked through the even $2 mark and I expected it to crater. It did not, it actually closed back above $2, annoying, choppy and boring. But for some reason I’m determined to continue to watch it. Please market go up 10% in day so I can find some REAL short setups instead of crap like this. SHORT

DIVX

I can’t believe I actually bought this stock… Only thing further from my core strategy would be trading GS or AAPL or FAS/FAZ… More or less an attempt to scalp a Tim Sykes alert. But if I was scalping I should have been in and out before the close yesterday, but I decided to hold. If this trade ends in the green I will be VERY shocked. LONG

Update: Jeez, I just saved and started to upload the chart, I’m embarrassed to even post it, yuck…

NLST

This stock is a perennial good short. Not sure if its a sound strategy but at least sounds nice to short a stock that is up 20% when, we lost, LESS money then we thought we were going to, we still didnt make any, just lost less. Revenues are up big though, so thats encouraging on the long side. I’m pretty sure I lost a little money shorting this last year, so I’m afraid this might be a spite play. SHORT