How to Day Trade Like a Beach Bum
Welcome to a special European Edition of Penny Stock Millionaires. As always, I’m excited to share what I’ve been doing in recent days.
I love my life and I’m grateful I had the opportunity to learn stock trading back in high school. Now I’m grateful to have the opportunity to teach others.
Which is even more rewarding when I get to do it from the fantastically ridiculous luxury in Switzerland and France.
I just spent a few days at the beautiful Bürgenstock Resort overlooking Lake Lucerne in Switzerland. Definitely check out the website. The crazy pool with a view is amazing. Also, the food in the various restaurants is excellent. Add this one to your bucket list if you love to travel.
Now I’m in France staying in a 16th-century manor house. The place is pretty incredible because the house is built right in the middle of a closed park. There’s a lake, the gardens are beautiful, and the decor is stunning. It’s pretty big, too, with something like 10 or 11 bedrooms.
Penny Stock Trading Lessons
My lesson for this issue is from the 4th of July holiday week. The markets closed early on Wednesday, July 3rd and were closed on July 4th.
Trading during holiday weeks is a little different. This is detailed in some of my other issues.
I very rarely buy things pre-market but on holiday weeks things move quicker. So on holidays, I’m gonna be in pre-market if I think a stock is going to spike.
Which is what I did with RBZ…
Reebonz Holding Limited (NASDAQ: RBZ)
Reebonz is like an online consignment shop for designer and luxury items. Users sell luxury items they no longer want. Or if you’re a buyer, you can score killer deals on used luxury items like watches and handbags.
On July 2nd, RBZ spiked pre-market on news it was expanding its recently launched “Sell to Reebonz” service to five new markets: Australia, Hong Kong, Indonesia, Malaysia, and Taiwan.
Another thing to consider is the recent hot IPO of The RealReal. (NASDAQ: REAL) The RealReal is a U.S. based luxury consignment operation. REAL began trading on June 27th, so RBZ was also a sympathy play.
I made two trades on RBZ on July 2 — one winning trade and one losing trade. It’s a former runner, it was a little choppy that day, and remember it was a holiday week.
The first trade was the speculative pre-market trade. My entry was near $4.30 and I was out at $4.50. Because it was pre-market, I didn’t get greedy and was happy to lock in safe profits.
Then Came the Second Trade…
RBZ was looking weak at the open and I wouldn’t chase unless it broke the $4.50s. Then, one minute later it started to spike but it was too fast for me and I missed.
I managed to get back in for the breakout over pre-market highs as I thought it could keep going.
However, I took a smaller position because it was moving so quickly.
As it turns out, there was no follow-up spike so I didn’t want to risk it. Rather than hold and hope, I cut losses quickly to protect overall profits.
On the first trade, I was aiming for 10%–20% and only got 4.9%. However, that translates to a $525 profit.
The second trade my plan was to sell into the low $5s — which would have been roughly 10%. Instead it was a loss of $94 or 1.09%.
I hope you take notice of two things with this trade:
- Above all, I protected profits. I didn’t let ego get in the way when the second trade went against me.
- Also, the gain percent on my first trade outweighed the loss percent on the second trade.
So, the big lesson from these two trades is to trade safer and prepare for quicker moves on holidays. Also, sometimes you have to be in pre-market to beat the crowd.
Let’s get to a couple questions from students…
Questions from Students
“When there’s a hot sector, should we focus on sector leaders even if they’re high priced? Is this a good way to identify potential sympathy plays?”
Um, yeah, I’ll use Beyond Meat (NASDAQ: BYND) as an example. BYND is the leader of the vegan space. So if that’s spiking, other potential vegan plays might be spiking. But it’s not an exact correlation.
It’s good to be aware of the market leaders and sector leaders just to see what’s hot and how you can play around that.
It doesn’t necessarily have to be a sympathy play in the same sector. It could be one of the company’s suppliers. There are a whole bunch of ways to look at any stock that’s running. If you do that, you start thinking outside the box.
For example, if Tesla (NASDAQ: TSLA) starts to run, you don’t necessarily have to just look at all the car companies. You could look at companies that make car components. Certainly you could look at companies that make batteries for electric vehicles. You could look at companies that make all the components involved in electric cars.
“When reviewing a trade after the fact, there’s a lot to consider. I’ve heard you say it’s better to be on the right track and miss than on the wrong track even if you had a profit. Would you please expand on this idea?”
Sure. Again, no single trade matters. You want the trades to do well if you do the exact same trade 10 times … 50 times … or 100 times. If you do that same trade 10 times and you only lose 20% or 30% of the time — that’s a good trade.
In contrast, if you lose once or twice on a pattern you don’t have enough data. Your data set is not big enough.
I’ve heard people say, “Oh, I lost two trades in a row with this trade. It didn’t work out. I was wrong.”
The question is, how would you have done if you did this trade over and over again?
You should be constantly backtesting different strategies. Similarly, you should be backtesting different patterns.
And, it’s not just backtesting. You also need to be present testing. Use your current trades. See how you would have done had you held longer.
Tracking Your Trades
Finally, you should keep track of everything in your trading journal.
I’ll use my RBZ trade as an example. I was glad to buy it pre-market and sell into strength. But then I kept watching it to see if it would keep spiking. I sold right near the pre-market top in the $4.50s. But near the market open it went to the $4.70s, so I was really on the right track.
I mean, it’s next to impossible to nail the exact top and bottom in any trade.
Don’t expect to nail the exact top and bottom. I didn’t and you won’t, either. If you do, it’s luck.
But being on the right track is not necessarily luck.
It really doesn’t matter that I made 20 cents a share on this trade. What matters is, I was dead-on right that it could spike more at the open. So, this was a good trade in a sense that I took profits on it, but an even better trade in the sense that it spiked more.
That’s how you have to look at it. It’s not just about what you did on the trade, but what you would have done had you held longer. Some people have profits but had they held longer they’d lose every single time. So they got lucky taking profits.
You have to think “How can this work again and again and again?” Always remember it’s not an exact science. It’s a process.
The Bottom Line
That’s a wrap on another issue. But before you go, I wanted to remind you all about my true passion project: charity.
I’ve had some meetings with a bunch of new charities. Nothing formalized yet. So far, we’re in the talking stages but these things take time.
The “Save the Reef” documentary now has 2.75 million views. We’re trying hard to get it over 3 million because the more views it gets, the more awareness the crisis gets.
Also, it helps Karmagawa gain credibility. So if you haven’t watched it yet, please watch it now and then share it on your social media.
As for trading, here’s a recap of the main lessons:
- During holiday weeks things can move fast, so be prepared.
- Likewise, because things can move fast, you have to play safe. So, be willing to take smaller position sizes.
- Always cut losses quickly.
- Pay attention to sector leaders but also start thinking outside the box. Are there related companies — like suppliers — that are potential plays?
- Backtest and present test your trades and trade ideas. Develop the skills to be on the right track more often than not.
— Tim Sykes
Editor, Penny Stock Millionaires