2 Trading Patterns You Should be Using
Dear Penny Stock Millionaire,
I’m in the U.S. now for meetings. Planning, planning, and more planning…
I was just in Turks and Caicos where I spent a little time at the beginning of the year. I was supposed to take it easy in Turks. But, I’ve been posting like crazy on social media. Australia is on fire. The fires are still raging — and over 1 billion animals have died.
The crazy thing is, February is historically one of the worst months of the year. So it might get worse and more devastating.
As for me, I’m working non-stop. I’m trying to plan a good time to visit Australia. But the charities are all overwhelmed with work. So they can’t even tell me a time to visit.
Missed Opportunity to Workout With Thor
One thing I was able to get involved with was a bid on a workout with Chris Hemsworth (aka Thor) and his wife Elsa Pataky. Unfortunately, I didn’t get it. I put in a bid of $46,000 with a max bid of $50,000. But I was asleep when the auction finished. (Australia time, right?)
Needless to say, I was disappointed. I’m a huge fan of Thor and Chris Hemsworth’s work. Obviously, he’s jacked, so it would’ve been cool to work out with them. They would’ve kicked my butt!
But I had some fun with it. And no matter who won the auction, the money all goes to charity to help Australia. It’s a win/win — even though I Iost.
OK, let’s get to some…
There are some really good trading lessons this week.
First, even though I’m traveling, working with charities, and crazy busy, I’ve averaged $1,087 in profits per day in 2020. That’s per trading day, of course. Yes, I’ve had some small losses. But they’re like $120 or $150. The gains are much bigger on average.
Very important: you don’t see me having $1,000 losses. Instead, I have $100 or $200 losses and $1,000 wins. Those wins wipe away ALL the losses.
Here’s another way to look at it…
At the time of writing, I’ve closed 25 trades this year with only three losses. My average win is $651.29 while my average loss is $207.77. So even if I was trading with a 50% win rate, I’d be way up on the year. But I’ve had a good year so far with an 84% win rate.
Two Trading Patterns Working (for Me) Now
Recently, morning spikes and first green days on OTC plays have been working for me.
First Green Days On OTC Plays
If you’re not familiar with them a first green day is a low-priced stock with some kind of catalyst like…
- A new 52-week high.
- The company introducing a new product.
- A good earnings announcement.
- A billionaire investing in the company.
- Or some other kind of news alerting traders to the stock.
And not just alerting but influencing traders to buy it.
With low-priced stocks, we’re taking advantage of informational inefficiency. With the right catalyst and enough volume, it pops up on the radar of traders who normally don’t trade low-priced stocks. When they see it they say, “This low-priced stock is in play… there must be something in it…”
Then, over several hours or several days, it keeps going. And I look to buy when it’s closing high — or near its highs — after a strong catalyst and big volume. If it plays out right, it should gap up or morning spike the next day.
Let’s get on with a few questions I’ve been asked recently.
Tim, you encourage students to become self-sufficient. How do you define self-sufficiency as a trader?
To start, it’s when you don’t need to ask me “What’s this stock gonna do?” or “What stock are you looking at?”
Self-Sufficient Trader Tip #1: Know Which Stocks to Watch
All my top students know which stocks to watch. They know how to build a watchlist. (Hint: They’re looking at big percent gainers.) They know their patterns — their favorite patterns.
It’s not just knowing all the patterns. We’re all different. Get to know what you’re best at.
Self-Sufficient Trader Tip #2: Know How to Make a Plan
Then, you have to know how to make a plan. So first you have to spot the best plays and know what works for you. Then you have to know what you’re gonna do.
You need to know…
- Which pattern is it? And what’s the price action?
- What’s your risk vs. reward and your ideal entry price? And how much will you risk? What percent gains are you looking for? What will you do when it hits or comes close to your target? What’s your mental stop-loss price?
- How easy are your entry and exit? How much volume is there on the day?
- What’s the stock’s past history of spiking?
- What time of day are you considering trading? How does it fit your personal schedule?
- What’s the catalyst? Has it been working well recently?
- How’s the overall market doing? What’s the environment?
At first, you probably need to go through each of these steps with every trade. Over time you may be able to do a few quick mental calculations and come up with a plan. But don’t rush it. It takes time.
Self-Sufficient Trader Tip #3: Know How to Execute the Trade
You also have to know the mechanics of trading. This includes knowing the right order type and understanding slippage. It might be knowing how to get in and out of a stock if it gets choppy or starts moving fast.
Again, it takes time. You need to get market experience. Do it with a small account and small position sizes… Over time you’ll get a feel for it.
Tim, going long on short squeezes seems risky but a lot of your students are doing it. Is there a good risk vs. reward for this kind of play?
Again, this goes back to knowing your favorite patterns. I know a lot of students who are banking … buying stocks like TRIL and CPAH. These are/were short squeezes that are in play.
For me … I’m really not good at it.
When I’m long, shorts like to mess with me. They’re no different than promoters. I say shorts are the new promoters. I didn’t like it when promoters knew I was shorting their stocks. And I don’t like it when shorts know I’m longing their stocks.
It’s almost like they do everything to get me out. They know that rule #1 is cut losses quickly.
So… I’m not great at them. But a lot of students are doing well with them. And that’s fantastic.
Also, it’s not as risky going long as it is going short. Because these stocks can spike so quickly.
But if youare going long, recognize that you’re buying a very short-term catalyst. Short squeezes are nice for a few days (at most), but then they crash.
Check out these recent examples…
CounterPath Corporation (NASDAQ: CPAH)
CPAH was a fantastic short squeeze. It went from roughly $1 all the way to $6. Now it’s back in the mid $2s.
Take a look at the CPAH one-year chart first:
CPAH chart: 1-year, daily candle, short-squeeze — courtesy of StocksToTrade.com
And now look at the chart from January 10–17:
CPAH chart: from after-hours January 9 to market close January 17, short squeeze — courtesy of StocksToTrade.com
Notice the quick morning spikes on the chart. Four out of six full trading days there was a morning spike. Make a note of that.
Here’s another short squeeze…
Trillium Therapeutics Inc (NASDAQ: TRIL)
I called TRIL on my most recent penny stocks to watch list. It went from the mid $1s to the $3s. And now it’s also back down to the $2s.
Here’s the TRIL one-year chart:
TRIL chart: 1-year, daily candlestick, fantastic short squeeze — courtesy of StocksToTrade.com
Now take a look at the chart from January 9–17:
TRIL chart: January 9–17, 1-minute candle, short squeeze — courtesy of StocksToTrade.com
If you do want to participate in a short squeeze, you’re going for the quick morning spike.
As you can see from the chart, TRIL had news premarket on January 9. That led to a small pre-market spike, and then a huge morning spike at the open. But then it kept going. Day two … morning spike … day three … morning spike…
But I wouldn’t be buying for the short squeeze on day four. Or day five. It’s kinda like a bouncing ball that’s petering out…
That’s another one in the books. Today, we covered the two patterns working for me right now — first green days and morning spikes. Also, three tips on becoming a self-sufficient trader and how to go long on a short squeeze.
Use these tips to boost your own trading game.
Editor, Penny Stock Millionaires