Are You Using the Sykes Sliding Scale?
Today is Memorial Day. I hope you’re able to spend some time with your friends and family. One of the most important things in our lives is the relationships we have with those close to us.
I’m always going to be a big advocate of trading and studying, but make sure you fit time in for other important things too!
Now, once you’ve finished with your barbecues and cook outs, come back to this and finish reading up on my eight tips for quickly cutting your losses.
Here we go…
#5 Adjust Your Position Size
You can modulate your position size in every trade. Sometimes you can be more aggressive. Other times you need to be more conservative.
This isn’t just like going to the casino, where you’re betting on black or red and you double your money or lose all your money. You can modulate based on the situation.
For example, maybe a pattern has been working so well lately that you say “Why don’t I take a 50% larger position this time? Maybe I’ll double down.”
Or perhaps you’re buying an earnings winner, which in years past has been fantastic, but now, after a roughly a decade-long bull market, the earnings winners aren’t doing so well. You could enter the trade but take a half-size position.
See what I mean? You can adapt depending on the situation.
Sometimes, for example, you simply enter a trade with your regular position size and the stock is doing exactly what you want, but you have a meeting or a class or whatever. You might have to take profits earlier because of your own personal schedule.
See? You can adjust your position and manage your risk based on every unique situation.
#6 Master Your Chart-Pattern Knowledge
If you want to become a successful trader you’ve got to become a lifelong dedicated student, and mastering chart patterns is something you’ll probably spend a LOT of time on (especially if you’re into penny stocks like me and my students).
For me, much of being a successful trader is about trading the right patterns. This knowledge has served me well and I want the same for you.
Once you know the patterns inside and out, you’ll know when a pattern isn’t working well and the right time to get out. That’s why you should dive into learning about patterns from my massive vault of thousands of video lessons. In fact, you can start here with free lessons now.
From all the chart patterns you could trade, there are two that are the most important. I’ll share those with you now…
The morning panic dip buy is one of the most solid patterns you can learn, and it works especially well for those with small accounts.
In this chart pattern, what you’re looking for is a penny stock that has risen dramatically over the past one, two, three weeks, and one that has automatically dropped in price — not on any bad news, but due to a regular price pullback that triggers a tsunami of stop-loss orders that causes the accelerated drop in price.
When this happens, my goal is to dip buy the stock to hopefully capture gains of 20%, 30% or even 50% within an hour or less, as the bounce is very potent and happens fast.
I loooove morning panics. I have more than 550 video lessons that address this pattern. Here’s one of them…
Know what else I love? The supernova. Fun fact: Supernovas are—above and beyond—my favorite chart pattern to play.
It’s basically an explosion in stock price that creates many opportunities to buy on the way up and short sell the stock on the way down.
Most of the time, there’s not much financial information available with these, but you start noticing a gradual increase in price over the weeks, then the momentum continues until the price explodes exponentially and creates the opportunity.
And if that opportunity is there, you don’t want to miss it — so learn this pattern well!
#7 Learn the Sykes Sliding Scale
Many people ask me, “Tim, how do you pick your trades?
From the vast universe of patterns, stocks and potential opportunities, which ones are the best?
I have strong selection criteria to filter every trade and a trade-ranking system that allows me to filter the real gems from the noise.
I call this ranking system the Sykes Sliding Scale (SSS) and it’s based in the ranking of seven factors I grouped under the acronym PREPARE.
Here’s what each letter stands for…
P: Pattern/ Price
R: Risk/Reward Ratio
E: Base of Entry/Exit
P: Past performance/History of spiking big.
A: At what time of day is it? What’s your personal schedule?
E: Market Environment
From these seven factors, the three most important are:
R: Risk/Reward Ratio
A: At what time of day is it?/Personal Schedule.
Combined, they count for 60% of the scale. And there are good reasons for that, but you’ll have to dig deeper because I’ve got to wrap up this issue shortly, so make sure you check out some of my other free material where I explain the SSS in more detail.
#8 Knowledge Supports Growth
Since you know that you’ll have losses, use them to your advantage: Make your losses your own teacher.
Think of losses as partial tuition you pay toward your trading education. Keep a record of them in your trading journal and study what went wrong in every case.
Was it the execution of the trade?
Did you choose the wrong pattern?
Did you take too much risk this time?
Why didn’t the pattern work as expected?
Keep track of this information, and you’ll learn a lot every time. Soon, you’ll begin to understand what trading moves are working for you — and those that are holding you back.
Another smart move: Learning from others.
When you go it alone, you risk making small-but-critical mistakes that deplete your profits.
The Bottom Line
As you’ve learned here, losses will unquestionably be a part of your trading career, so the faster you get used to dealing with and learning from them, the faster you can progress as a trader.
Remember that you always need to:
· Plan out and fully prepare for every trade
· Stick to your plan
· And cut your losses quickly if/when you realize the pattern isn’t working
Limit your trades to those with a good risk/reward ratio based on the pattern — they’re the ones that can help keep your losses on a short leash while having a big reward potential. Be selective in every case!
And again, turn every loss into a source of wisdom. It will make you a stronger, wiser, and more confident trader.
In this game, the right mindset is everything, so do everything you can to increase your chance of becoming a better trader.
— Tim Sykes
Editor, Penny Stock Millionaires