The beginning of this chapter is a continuation of Chapter 3, basically they roll right together. I’m assuming they simply capped the last chapter at a certain time amount/file size even though Tim kept on rolling. More discussion of making a trade plan. While Sykes goes into great detail and keeps driving home the same points, there is great value here. EVERY trade needs to have a plan, with entries, exits, profit and loss goals as well as a calculated risk to reward. I like to brag about being disciplined in making trade plans but still to this day I often don’t follow all the steps. Especially when it comes to making a quick calculation on the risk to reward. I’ll write a detailed plan that says “I will enter here, exit for a loss here, and exit for a profit here” But in doing so I often don’t zoom out on the chart and think about a calculated risk to potential reward. Then after the fact I exit for a small loss or a small win, and realize, that yeah, there was just not enough “meat on the bone.”
Stick to your plan, reduces stress and makes it easier to make decisions, if you break the plan once, you will keep breaking it. – Tim Sykes.
Also a valuable plan discussion is forcing yourself to stick to that plan. Often traders break the plan, get squeezed or take a big drawdown, then the trade comes back and gets them to break even or even possibly a profit. This teaches shitty habits, and I’ve been there before. You start justifying and even though you don’t consciously think it, in the back of your mind you are saying “Well it worked last time, I’ll just let it ride.” DO NOT DO THIS, follow your plan and never justify. Sykes stresses that extensively in this chapter. Good stuff.
A good trade is not determined by the outcome, its determined by your planning and ability to stick to that plan. – Tim Sykes
After roughly the first third discussing plans, the middle third goes into the concept of cutting losses quickly. Along with a solid discussion of a slight modification of that rule. Tim goes into “cutting losses intelligently” based upon a lot of factors. Time of day, position size, day of the week etc. He then spends some time discussing CYGT, the history of the company and the trade as well as the failed logic of becoming a “bagholder”.
The next segment rolls into more on how to locate stocks to trade. There is a good detailing of a lot of fundamentals, EPS, Analysts, Revenue, Profit Margins, earnings dates etc. More review of ONLY watching the percentage gainers, there is no point in trading a stock based on any sort of fundamentals if it is not moving. Whether the earnings are awesome or terrible, if the market does not react, ignore the ticker and start scanning for one that is moving. Keep in mind as a newbie, you may not realize that if you trade an illiquid stock even with small size, the price action could work your way, but when it comes time to exit you end up trading against yourself and giving up a lot of your profits just because of the bid/ask spread. Or even worse, you want out for some reason and every time you close a part or all of your position your losses grow. ONLY TRADE STOCKS THAT ARE MOVING AND LIQUID.
Last part of the chapter sums up with breaking down a few more trades. $BDR, $MAGS, $ESI. Solid discussion on watching for the “hot sector of the day” and looking to trade those stocks or sympathy plays. Whether it be Ebola, Police Body Cams, Marijuana, or some other catalyst. Every day or week there is usually a new one, focus on these stocks, ride the market like a wave.
In summary this was a very solid and well organized chapter. Great content and almost ZERO rambling on or ranting (which Tim is prone to do). Very solid information and presented with a good level of professionalism.
Rating: 4.5 out of 5 (Best organized chapter so far)
Continuation of trade plan discussion and successful trades – how they play out.
Find what works for you and stick to it.
AGAIN spell out your risk to reward and WRITE IT DOWN BEFORE trade.
Stick to your plan, reduces stress and makes it easier to make decisions, if you break the plan once, you will keep breaking it.
Judge your trades on execution/plans implementation vs dollar amount. No pride in profiting on a shitty trade that you were down big on and it came back to you.
Interesting anecdotal stat “15 years in and this is my first year with no big loss”
Good discipline discussion. Discipline is BY FAR the most difficult part of trading.
“A good trade is not determined by the outcome, its determined by your planning and ability to stick to that plan”
Cutting losses quickly is different than cutting losses intelligently
Time of day is important – different risk and goals depending on the time of day.
Good discussion of boredom trading – and how and why to avoid it
Questions to ask yourself for planning/stop losses
-What loss would freak you out?
-Do you need the money to live off of?
-Discussion of Sykes biggest loss and lessons from “investing”
-Best lesson is to stick to your niche/rules.
-Restricted stock is very tricky
Judge EVERY investment not only on potential gain, but potential risk.
NEVER invest or trade in ILLIQUID pennystocks
-you end up trading against yourself when you want out
-Solid earnings and contract winners – THAT ARE MOVING
-Do not get to big in size so that you can let trade work and do not move the price when you want to exit.
-Don’t waste time waiting for something to work
-new opportunities every day, no reason to wait around on something that is not working
-aim to make 50 cents to $1 a share
-try and be choosy and not trade every day
-cut losses quickly when the plan doesn’t happen
-add to winners/scale in
-buy/short AFTER earnings not in anticipation/before – ANYTHING can happen on earnings, and OFTEN the OPPOSITE of what logic says
Interesting story on VDSI article, about buying into earnings and getting fired from the street.com
More discussion of VDSI.
Buying earning winners and how and when to enter trades time of day etc.
Lots of opportunities in earnings, posted 4 times a year but often delayed, earnings are all year long.
Breakdown of VDSI, and featured subscriber trades on it.
In penny stocks you can make money even with poor implementation.
Position sizing and “getting too big” if you get oversized you can get spooked out of trade that eventually works, watch your size. Should be in your plan.
Fundamentals to watch and definitions
-these are useful but ONLY PRICE MATTERS
Always better to react to the price action on earnings, there will always be guys smarter then you as analysts.
Breakdowns of analyst actions and upgrades and downgrades
Good point of looking for % gainers THEN the news instead of the other way around.
With earnings winners, take the fundamentals then match them up with the technicals (chart)
While earnings winners is a solid strategy, if they do nothing in reaction to earnings IGNORE THEM.
ALWAYS IGNORE unchanged AND BIG LOSERS, buying washouts is very iffy and low percentage.
How to line up earnings with a chart – Facebook example FB
Boring industries/stocks can be trades on earnings and IF the chart and volume are there.
Breakdown and thinking behind other earnings/news winners/ Ferguson body cams etc
Explanation of messing up order placing, fat finger trades etc.
Discussion of trade limitations based on time limits
EFOI – Government contract winner
TCCO Webinar up next. Contract winner