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If you read my most recent blog post “Try This Every Morning And You’ll Make Money”, you know I like to look for a VERY specific setup to trade as I prefer a high degree of probability of it working out for me, roughly 90% of the time just like this great upcoming student said here:
If you’ve seen this other video with my first 2 millionairestudents:
…you know the secret to success really is to simply master a few key patterns in the market and rinse and repeat thousands of times with profits of a few thousand dollars, while cutting losses when wrong, add those up over time AND THAT’S IT!
Now obviously that’s easier said than done and patterns go in and out of usefulness every few years, months or even weeks, so you must always adapt and study, study, study but that’s the gist of what you need to do to be successful, and it’s through obsessive studying of the past that you’re able to better understand these patterns and formulate a strategy that works best for you and your personality.
Ah yes, there’s no one magic formula, we’re all different so we all see and trade stocks in a slightly different manner…many times, you’ll see my millionairestudents and I trading the same stock on opposite sides as they’re primarily short sellers whereas I’ve gravitated towards being a dip buyer as of late. Yet thanks to the stock’s volatility we can both make money on our patterns over different time periods.
But aside from all my top students’ and my success, 90%+ of traders lose and out of those who lose, many traders lose everything and “blow up”. I know traders in far too many other chatrooms and websites who have lost 30%, 50% or even 100% of their money on just one or two trades due to flaws with their approach and that just isn’t right. Trading doesn’t have to be like that if you have the proper mindset and risk management in place BEFOREHAND.
What’s even worse is I know many people don’t start trading in the first place in fear of losing big and blowing up so they never even give themselves and their future earnings a chance…crippled by their fear of the unknown and unimaginable. And that’s bullshit as there IS a safe way to trade stocks, even ugly, manipulated, volatile, scary penny stocks.
This post is a list of rules to help lessen your fears and give you specific instructions on what NOT to do because I’ve experienced big losses as you might’ve read:
…and I’ll tell you straight up that each and every time it absolutely sucks when it happens. All your hard work and studying doesn’t matter sometimes and it’s like a punch to the gut … it’ll feel like you can’t breathe.
So memorize these lessons and don’t stray from them…EVER:
Rule #1 always has been and always will be CUT LOSSES QUICKLY. My dad, who lately has been of great help to newstudents, like to say “big losses always happen this way, it goes from green to red to stubborn”, meaning a student will have a small profit on a stock, get greedy and not take the profit, then will start losing money on the trade, or going red on their position, and then they get stubborn, refusing to cut losses quickly and that’s how small gains and losses can turn into potentially big losses.
I don’t care what your ego tells you, I don’t care what gunslinging traders who wear their blow ups as badges while they’re really just addicted to “action” tell you, LEARN TO TRADE LIKE A COMPLETE COWARD LIKE I HAVE and your trading does NOT have to be stressful if you’re willing to simply exit trades quickly when they’re not heading in your direction like you wanted.
2. DON’T GO ALL IN…no matter how sure you are on ANY play, long or short, something can always happen that will change the trade, sometimes slowly or sometimes even in a heartbeat and you cannot predict these events, all you can do is learn to prepare for them ahead of time by taking reasonably smaller position sizes. Yes, it’ll take you longer to make millions, but remember 90% of traders lose so the odds are against you, especially in the beginning, and if you are somehow going to be successful, you have plenty of time to bet bigger and take more risks AFTER you have some financial cushion and experience down the road.
3. DON’T USE LEVERAGE AND DON’T BORROW…I know many people think leverage is the key to turning a few thousand dollars into millions, let me cut through that bullshit and tell you it’s not and I’m not basing this just on my experience alone, but now the experiences of SEVERAL of my millionaire students and upcoming millionaire students too. These penny stocks are plenty volatile for you to grow an account exponentially within a few years without the need to borrow money from your broker, or anyone else for that matter too.
4. AIM FOR SINGLES, NOT HOME RUNS…obviously it’s more fun to try to find a huge winner than a small winner, but my millions and the millions of my top students have been made one 10%, 20%, 30% gain at a time, we NEVER aim to make 100%, 200% or 500% like too many newbies and gunslingers try to do, usually missing their mark and not learning to take singles over and over and over again instead of going for home runs and often striking out. The cool thing is that if you aim small and miss small, sometimes you will hit the occasional home run just by being so dead on with a trade, but don’t expect it or aim for it; be the Ichiro of penny stocks, don’t do steroids and end up like Sammy Sosa/Mark Maguire (if you’re unfamiliar with my sports analogies, look up these baseball players and shame on you!)
5. IGNORE MAINSTREAM BS: Understand that my top students’ favorite strategy of short selling hyped up penny stocks might sound dangerous if you believe the mainstream media, but if you’re following rules #1-4, it’s really not. The perfect example was KBIO, a junk penny stock that several of my top millionairestudents and I were shorting after it had already quadrupled to roughly $2/share on questionable news, but after-hours even more questionable but positive news came out and the stock started spiking more…several big short sellers kept adding to their short positions claiming it was overextended, but my top students and I simply followed rule #1 and cut losses quickly, each of us losing a few thousand dollars while others got crushed for six and seven figure losses as the stock continued spiking all the way to $10+/share in one after-hours session and $20/share within a few days, $40+ a few days later…some traders were wiped out and the press use it as an example of why short selling penny stocks is so dangerous even though all shorts would eventually be proven right when the stock crashed again. If you trade like a coward with a reasonable position size, you’re absolutely fine, let the mainstream press lie and BS, that’s good for us so it weeds out people who are on the fence…the beauty of being real in an industry full of scams is I’m not looking for more students, if you have ANY doubts about me, my strategy, my top students, just don’t learn, weed yourself out, don’t become my next millionaire students and go with mainstream strategies that aim to make a lousy 10-20% per year LOL 🙂
6. STOCK PRICES ARE NOT ALWAYS RATIONAL SO ACCEPT IT as evidenced by that KBIO example so even if in the end you are proven right, why risk blowing up and losing everything just so your ego can feel better? There’s a famous Wall Street quote that stock prices can remain irrational longer than you can remain solvent and this holds true for both longs and shorts who too often go down with the ship when they’re so narrow-minded in their thought process and they lose track of proper risk management on their positions, succumbing to pathetic forms of ego-management which doesn’t usually end well for their accounts.
7. UNDERSTAND THE STOCK MARKET IS COMPLEX WITH MULTIPLE INDICATORS INTERACTING AT ALL TIMES and once you do that no longer will you question or whine about why a stock doesn’t do what you want even though it’s the right price action or pattern or has the right news or earnings. If you’ve seen my free http://traderchecklist.com guide, and you should since it’s entirely free for just a few more days, then you know I use over half a dozen indicators on EVERY trade and it’s fascinating to see how they interact with each other and change a stock’s risk/reward. For example, often times a company reports record revenues and profits and CNBC hypes it up all day long and yet the stock drops…CNBC viewers are left scratching their heads wondering why? They don’t realize that the TV channel is entertainment, not useful for traders a all; in fact several studies have been done that claim consistent success by betting AGAINST whatever they’re positive on, that’s how bad they and their ugly bald mascot are as stock pickers! And that’s why their ratings are now at multi-decade lows too. Or, sometimes a hot biotech stock gets FDA approval and the media is all over the “positive” news and yet the stock drops because the approval was already priced in ahead of time…it’s never as simple as you or the media wants it to be.
8. DON’T TRY TO GUESS NEWS AHEAD OF TIME is a classic lesson I learned a while ago when I used think if I could research enough, and I mean 20-40-60 hours of hardcore digging into one stock, I could have some “edge” in predicting upcoming earnings or analyst calls or conference presentations, but I discovered there’s always something you can’t see that can change everything. For example, a biotech company gets FDA approval, but the stock is halted for a negative open because the FDA also smacked a warning label on their approval and the stock drops 50% when it re-opens for trading. Or a company reports bad earnings like you wanted if you’re short the stock, but the CEO surprises by introducing a new product that they’ve been working on in secret and is showing promise amongst their customers and the stock spikes 25% the next day. There’s PLENTY of money to be made AFTER the news is out, see my earnings winner blog post for more.
9. STICK TO PATTERNS WITH A HISTORY OF SUCCESS…after 2 decades of intense study and experimentation, I proudly show off my favorite patterns off here:
HERE and HERE on longs and HERE on shorts, but over-inquisitive students always want to ignore my hard work, trying to find their own patterns, inevitably coming away disappointed. Some of you really don’t get it, I’ve done all the heavy lifting for you, it’s your job to just digest it all and master it like several of my top students have in becoming better traders than me…you don’t have to reinvent the wheel here.
If you don’t know what patterns have been successful, then you haven’t studied the past enough…and you’re also not prepared for the many dangers in the penny stock world. For example, see my lesson from today on how I knew with a fair degree of confidence that OPTT would do a financing at discount prices that would crash the stock price:
10. NEVER SAY NEVER is a catchy Justin Bieber song, but more importantly, it’s a great way to stay safe in trading as ANYTHING can happen and the sooner your realize that the safer you’ll be. I can’t tell you how many newbie short sellers blew up or risked blowing up on recent Supernovas IDXG, PBMD, AQXP and DRYS, shorting way too big size too early thinking that these kinds of stocks simply couldn’t go up anymore…and don’t give me a line of bullshit about how fundamentals matter, DRYS is one of the most fundamentally flawed stocks in history and yet it also enjoyed one of the greatest runs in stock market history from the single digits to 100+ in just a few days before shorts got lucky/help from regulators when the stock was halted and subsequently crashed…if it hadn’t been halted pre-market, it could’ve gone to 150 or even 200, bankrupting brokers and short sellers galore.
I don’t wish failure or blowing up on my worst enemies, we’re all traders trying to capitalize on these stocks’ volatility and contrary to what coked out penny stock promoters believe, short sellers are good since they add liquidity to the market and if the promoter is actually diligent (which is rare), the shorts can be squeezed to create even more upside for the pumpers, and eventual stock price downside for those of us short sellers who like to enter when the over-aggressive-types have been squeezed out already.
And for all the narrow-minded short-only freakish trolls out there, there’s always going to be small companies hyping themselves up and promoters of all kinds, don’t wish ill on them, just capitalize on their hype and BS and short sell their pumps…it’s high odds money when the pattern is right.
I used to be VERY narrow-minded in my trading and teaching, but now after 10 years of teaching and nearly 20 years of trading I’ve mellowed out and just want everyone to be safe and learn to trade all these great setups the best they can.
So, I only want you leaving a comment below if you understand this blog post and promise to be a SAFE trader, not one who risks blowing up or losing big! Life is too short to trade too risky and be stressed out all the time.