Three awesome plays

So, I still do not have a broker that allows me to competitively trade U.S stocks. Since I am an impatient person however, yesterday I looked again for setups and decided to trade with my German broker that takes a “little” longer to fill orders. The setups of these three stocks seemed especially promising.

(1) BZUN

Beneath we see the setup for BZUN prior to yesterday. BZUN had broken out of a multiday resistance level. Even though the stock had moved quite a bit after the breakout the situation still seemed promising due to the rather strong close.

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When the market opened yesterday BZUN quickly morning spiked almost $1 per share before fading in the afternoon. Taking profits with a trailing stop for example, this would have been an excellent setup.

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(2) CSTM

Here comes the stock that I did ended up trading (very badly though). CSTM had broken through resistance the day before yesterday.Unlike BZUN however, the breakout was not that extended and the stock had closed strongly too.

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As we see this was pretty much the perfect play. During the day the stock went up from around $6.1 to $7.2. Due to getting frustrated with my broker I unfortunately got out way too early only breaking even on this incredible play!

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(3) Arex

Here comes the stock most difficult to play. Similarly to BZUN the pattern had been an extended breakout with rather strong close. Unbenannt

When the market opened this stock went crazy, spiking fast and strongly. After the morning spike however panic set in and the stock actually went red on the day. So very tight risk control would have been necessary in order to profit from this play.

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We see that some technical analysis as simple as the breakout pattern can promise huge percentage returns if played correctly.

Best,

Nils

Promoters Evaluation

Since the majority of the companies behind penny stocks are trash, sketchy methods are used in order to push stock prices up. Then, when prices are high insiders can get rid of their shares. One possible way of pumping the stock price up is to assign this job to stock promoters which are payed for this activity.

What stock promoters usually do is send out emails to their subscribers, telling  how much potential a given company has and that the stock is a definite buy.Thus, if a good promoter is at work the promotions are self-fulfilling prophecies – liquidity skyrocks and the stocks soar for a few days before the promoters stop promoting and stocks crash.

This activity is very sketchy and unethical but not illegal as long as the promoters put in disclaimers informing the subscribers about their compensation. And you can profit from this! Upon receiving the newest picks from the stock promoters you can anticipate the later price move, buy premarket and sell into possible morning spikes.

But promoters differ in quality. Thus, in the last weeks I studied various promoter groups and looked for patterns and graded their prior pumps. Here are the groups.

Group 1 (Penny Picks, DamnGoodPennyPicks, BeatPennyStocks)

This is my favorite group of promoters. While not all promotions were successful many offered profit profit potential. I assigned the following grades for 10  promotions: 4/10 promotions obtained the grade B/B-, 4/10 obtained the grade C/C-,  1/10 obtained the grade D and 1/10 obtained the grade E.

There is a general pattern in how stocks are promoted by this group. Generally, stocks are promoted for two days.Liquidity increases the first day with a huge increase the second day. Usually the stock is green on the first day with a volatile second day, often going red on the day. The third day (first day after promotion) the price usually breaks down.

Group 2 (StockCommander)

For this promoter my sample size is very small – I only observed one promotion. But this might actually be a good sign since the outcome was incredible. When stockcommander pumped ABWN on August 11th the stock soared with increased liquidity. Grade A-.

Group 3 (OTCTipReporter)

The results of this promoter are more volatile. Out of 8 observed promotions the grades were 1/8 A-, 2/8 B-, 1/8 C-, 1/8 D+ and unfortunately as well 2/8 F. This promoter has huge success or fails miserably. Since the promoter is able to increase liquidity strongly however, with very tight risk-control it is a promoter which can be recommended.

These are the first three groups of promoters I can recommend. Other promoters recently haven´t achieved quality results and I will have to observe whether they offer short selling opportunities.

Best,

Nils

Reminiscences of a Stock Operator

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“Reminiscences of a Stock Operator” is one of these books that just do not lose relevance with time. Written by Edwin Lefèvre it is loosely based on the life of legendary stock speculator Jesse Livermore. Even though published in 1923 the content of the book would almost perfectly fit in today´s times since above all the psychology of the markets is treated and obviously we traders do not learn from the past.

Below I have listed my favorite passages of the book.

Enjoy

“I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn´t get you anywhere.”

“here is only one side to the stock market; and it is not the bull side or the bear side, but the right side.”

“If I buy stocks on X´s tip I must sell those same stocks on X´s tip. I am depending on him. Suppose X is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgement.”

“They say you never grow poor taking profits. No, you don´t. But neither do you grow rich taking a four-point profit in a bull market. ”

“Well you know this is a bull market! [This means] that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.”

“It never was my thinking that made the big money for me. It always was sitting. Got that?”

“I began to realize that the big money must necessarily be in the big swing.”

“One of the most helpful things anybody can learn is to give up trying to catch the last eight of the first. These two are the most expensive eights in the world. ”

“When it comes to selling stocks, it is plain that nobody can sell unless someday wants those stocks.”

“To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.”

“The only thing to do when a man is wrong is to be right by ceasing to be wrong.”

“In the long run commodity prices are governed but by one law – the economic law of demand and supply.”

“The speculator is not an investor. His object is not to secure a steady return on his money at a good rate of interest, but to profit by either a rise or a fall in the price of whatever he may be speculating in.”

“In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be up or down. The thing to do is to watch the market.”

“A man may make money out of individual deals in cotton or grain, but no man can beat the cotton market or the grain market. It´s like the track. A man may beat a horse race, but he cannot beat horse racing.”

“Always sell what shows you a loss and keep what shows you a profit.”

“There isn´t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting.”

“It has been my experience that whenever a stock crosses 100 or 200 or 300 for the first time, it nearly always keeps going up for 30 to 50 points and after 300 faster than after 200 or 100. One of my first big coups was in Anaconda, which I bought when it crossed 200 and sold a day later at 260.”

“I noticed that stocks which had been the leaders of the wonderful advance had ceased to advance. They dropped six or seven points and stayed there. At the same time the rest of the market kept on advancing under new standard bearers. Since nothing wrong had developed with the companies themselves the reason had to be sought elsewhere.”

“Men do not take tips because they are bally asses but because they like those hope cocktails I spoke of.”

“The speculator´s deadly enemies are: Ignorance, greed, fear, and hope.”

“No one can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions. No matter how experienced a trader is the possibility of his making losing plays is always present because speculation cannot be made 100 percent safe.”

Best,

Nils

A lesson on liquidity, hope and patience

Hey there, how is it going?

Do you remember my posts on Resolute Energy Corporation Corp. (REN) and how I told you that eventually this will come down? Well, being certain that a certain stock eventually will break down should not exclude you from riding it up until indicators align.

In order to trade fast moving momentum stocks however, you need the right broker. So, recently I have been spending time opening brokerage accounts with various brokers allowing me as a German to trade American NASDAQ, NYSE and OTC stocks. Nevertheless, due to some complications I still had not had opened an account yesterday when a perfect trading setup presented itself.

In the last weeks REN had been fading until Monday when it spiked strongly up to 8.35 and thus broke through resistance at 8.30. With a strong movement into the market close this seemed like a clear buy. Had I seen this on Monday,this definitely would have been a buy into the close hoping for a gap up (of course in retrospect this is easy to say).

So yesterday premarket REN actually did gap up hugely and seeing this setup play out perfectly I just could not hold myself back and bought 100 shares of the stock with my German account at a German exchange. What I did not think about and did not understand until later however, was that REN was incredible illiquid at that particular exchange. It took about 15 minutes for me to fill the order and I got in at around 9.6.

When the market opened REN opened weak and retraced back to 9.3. Then however it spiked and went up to close to 11. With more than $1 up on my 100 shares at this point I would have liked to exit the position but this is were the liquidity issue became apparent. After entering my sell order again it took more than 15 minutes to close my position.By this time REN had broken down and I filled at 9.75.

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Deducing transaction costs I ended up with a small loss. However, this setup played out very well and with a better broker REN would have offered a high profit potential.

With this first momentum stock trade I gained quite a few lessons and was lucky to have learned these lessons with only very little tuition fee.

I took the following out of the trade:

  1. LIQUIDITY is HUGE! Of what use is a big paper profit if you are not able to liquidate your position? Of no use at all!
  2. Trade with the right broker! Trading with a broker that does not fit your trading style and necessities cannot result in profits.
  3. Being prepared instead of relying on hope! Before entering the trade you should have already played out the different scenarios in your head and you should have a plan for every possible situation and know your exits. What I encountered myself relying on during yesterday´s trade was hope. “Come on, go higher!”, “Come on, fill my order!” were constant thoughts that I had. You should focus on what you can control and do your homework before entering the trade.

Best,

Nils