I Put Myself in a Trading Timeout.
Dear Penny Stock Millionaire,
I spent last week trading in timeout mode. More on that later in this post.
I was in New York, then flew to Miami for Super Bowl LIV. Here’s a little daily motivation for you… and a reminder to stay safe as the coronavirus continues to spread.
Let’s get straight to student questions…
“After your $PIXY trade on January 24, you put yourself in ‘timeout mode.’ Please explain what you mean.”
Yeah, so first…
If you don’t know the trade, I reviewed it in an issue last week. I broke my own rules on that trade.
When you have a bad trade, you don’t get more aggressive. You don’t say, “Hey, I’m doing things the wrong way, let me bet more money.”
Hard on Students, Harder on Myself
When students break rules, I tend to come down hard. And I come down on myself even harder. The PIXY trade didn’t cost me a huge amount of money. But I literally broke every single one of my rules. I couldn’t have traded it any worse.
I’m still in timeout mode. You won’t see me trading big until I prove to myself I can follow the rules and stick to good patterns.
A lot of people don’t understand. Newbies judge on wins and losses. “Oh, you won. Good trade!” Or … “Oh, you lost. Bad trade!”
But they don’t realize that you should cut losses quickly. You can be wrong about a stock and still have a good trade. If you lose — but stick to your plan and cut losses — that’s a good trade.
Other times you can win and it’s a terrible trade. Take short sellers, for example. Maybe they win 70% or 80% of the time. But it only takes one loss to completely blow up. So if you’re taking trades with terrible risk/reward 5% of the time… those are trades that can blow you up.
I’ve seen somany gunslingers come and go over the years. They think they know best. I’ve lost track of how many new traders make a lot on a hot sector or pattern. They think they’ve revolutionized everything. They say, “Sykes is a dinosaur who can’t adapt.”
But you can’t forget about rules and overlook risks.
Set Rules and Follow Them
I can’t believe I forgot my rules. It wasn’t my biggest loss ever (not by a long shot). But it was the biggest loss for me in a while. To make matters worse, it was a total loss of discipline. So I’ve gotta prove to myself that I’m worthy of trading bigger amounts again.
It’s not about integrity. It’s about good habits. And taking a step back after a bad loss is a good habit. With this trade, it wasn’t even about how much I lost. It was about my lack of discipline getting into the trade in the first place.
When you have a big loss, it’s kinda like a breakup, right? When you have a breakup you don’t say, “Hey, I’m looking for somebody to marry right now.” You need to take a step back. And you’ve gotta re-evaluate.
So don’t be afraid to put yourself in timeout mode. Too many traders get into revenge trades when they lose. That just makes things worse.
The key lessons here…
- Don’t let a big win lure you into thinking you can do anything. (See last week’s issue. The PIXY trade followed a big win on another speculative trade.)
- Also, don’t let a bad/big loss lure you into revenge trades.
- Stick to your trading discipline. Be willing to put yourself in trading timeout when you break your rules.
“You had a nice win on $CODX but left a lot on the table when it broke above $2.80 resistance. What are your lessons from that trade?”
I’m really conservative right now after my PIXY loss. Not that the loss was devastating, it’s more about me going against my rules and my plan.
Let’s take a look at the trade…
Co-Diagnostics Inc. (NASDAQ: CODX)
Co-Diagnostics Inc. was one of the stocks I wrote about last week in this post.
On January 29, the company had midday news of a new coronavirus testing product. It was a very time-sensitive trade. I caught the news when the stock was at around $2.30. By the time I bought it, it had already spiked to $2.50.
My goal was to make 10%–20%. That’s it. Take a look at the CODX intraday chart…
CODX chart: January 29 intraday, 1-minute candle, midday spike on news
It didn’t pop quite as much as I expected right away. So I sold into strength for an 8.8% win. Considering I’m in timeout, this one still wasn’t perfect. Here’s why…
First, it spiked around 2:10 p.m. So it wasn’t like a morning spike. And it wasn’t an afternoon buy into the close. Those are the two times I trade the most. For me, everything else is a little speculative. Second, it was moving very fast and a little choppy.
Going back to me being in timeout, if I was purely disciplined, I might only trade the market open and close.
But check this out…
More Than Breaking News on a Random Stock
It wasn’t just breaking news on some random play. CODX is one of the biggest recent winners. Take a look at the CODX six-month chart…
CODX chart: 6-month, daily candle — courtesy of StocksToTrade.com
Here are some of the reasons I bought it…
- CODX was roughly 30%–40% off its recent highs.
- It’s a former runner.
- I was buying on the multi-day dip.
- It was an intraday spike.
- And it had a solid news catalyst.
Learn to Take Singles
Did I leave some on the table? Yeah, I underestimated it. But I locked in $1,508. I don’t mind selling too soon. I was just glad to sell into strength.
Again, I’m trading in timeout mode. The main thing is taking singles. So when this trade hit my goal, I took it. It was around 2 p.m. Eastern — so it was a little early for me. It was a speculative trade and not the perfect pattern. I always trade those safely. And since I’m trading in timeout mode I was extra safe.
Remember, singles add up.
One last question for today…
“On morning panic dip buys, do you buy where you think early shorts are covering?”
It totally depends on the morning dip buy. Pattern is only one of seven indicators I use.
Am I dip buying a recent short squeeze? Or is it a pump that’s having its first crash after going up for eight days? Is it a hot biotech that’s over-extended?
In other words, you can’t just say one size fits all.
A lot of newbies want to simplify everything…
“Tim, what percent do you dip buy at?”
… or “What support level do you dip buy at?”
But each trade is a little different. So you gotta look at the pattern, float, and position size. What’s the volume? How fast is it moving?
Again, there are nuances. It requires building foundational knowledge, gaining experience, and then honing your process.
You can’t have these simple answers that everybody wants. If you only look at one or two indicators … you WILL lose. Maybe not this trade … or the next. But over time, you’ll churn and burn your account to zero.
The Bottom Line
Be safe as a trader. Focus only on the best setups. Newbie or experienced trader, plan your trades and follow rules.
If necessary, put yourself in timeout mode, like me!
I didn’t do it because of a big loss, or because I didn’t know what I was doing. I did it because I broke my rules and I needed to get myself back on track.
If you find yourself breaking your own trading rules you might want to consider it. You need to stay safe and play the long game when trading.
Editor, Penny Stock Millionaires