How To Make 8% Returns Before Lunch
Posted by timothysykes on Sun 30th of Mar, 2008 10:12:00 AM
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As I noted on Thursday, REED is my ideal kind of play—morning spikes, then sideways action, fades or plunges. No different from other recent microcrap runners SHZ (best to short on the 3rd, 4th and 5th days), DARA (3rd-4th days) and VION (3rd-4th days).
On Friday, I really nailed it—expecting a morning short squeeze (due to Thursday inability to fade/late strength)…awoke early to reserve shares, got all I asked for, 1,000 shares…liked the opening strength to the $4.75 range, but wanted more…damn big block sellers prevented the path to $5 (at which there’s big-time resistance)…volume wasn’t very impressive, so when a 3,000 share buy order bid at $4.75 (sellers were at $4.85, 87, 90, 93, 95, 99), I shorted into it…it got taken out quickly…encouraging…within minutes sellers came down and put pressure on the bidders around $4.50-$4.60.
Extremely bearish for a microcrap momo play to fail to truly spike on the 3rd day of a runup, longs get scared, rightfully so…situations like these, I should stay short as long as possible, but considering strength from the day before, the illiquidity and large price spread…oh yeah and a lunch meeting…I just want to take profits—preferably more than the $65 I made on Thursday (screwing up an easy $300ish gain).
So, when the stock fell to $4.35 x $4.45 and the buyers were holding strong, I bought my 1,000 shares back into a similarly quick to get taken out 3,000 share sell at $4.45 (maybe same guy?), nice quick $280 profit…after all, just cuz a morning spike fails, doesn’t mean the stock will plunge—could just be a fakeout to suck in more shorts and at $4.35 x $4.45, the stock still wasn’t down on the day.
Good cover, stock spiked right back to $4.75, I’d look to reshort, maybe after lunch…but after a few more minutes, sellers really came in, clearly a double top, this thing was gonna tank…reshort at $4.50-ish…cancel lunch, sit and wait…don’t have to wait long, 20 min and I’m up 20 cents/share, $4.30, buyers looking weak, very very positive for shorts since the stock is now down slightly on the day and could/should retest the previous day’s lows at $4.10-ish, if that gets taken out, stop losses at $4 could/should get taken out, cover into panic $3.7-$3.90
That was the plan anyway…but when $4.10-ish held, I covered half my position at $4.29, good cover, reduce risk, lock in gains…few more minutes and $4.10 cracks, then $4, excellent, just as expected, cover my other half position at $3.89…great, great cover, stock bounces back to $4.15 x $4.35, crazy spread
$700+ profits, or 8% on capital used…other traders say price action wild…to this short seller, EASY and PREDICTABLE…to help the confused, maybe I need to promote my instructional DVD more?
Look for same kind of action on Monday, still gotta be careful of spikes, but volume/buying interest is fading dramatically and thanks to some typical Friday short covering, stock closed at $4.25 (even if the bid was under $4!)
PS treated myself to the truffle + lobster mac and cheese at Bouchon Bakery…mmmmm….maybe get THIS Armani phone…nahhhhhhhhhhhh
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Great job Tim! I cant wait until you hit the 25K threshold and then i bet we’ll se some real action huh? Congrats.
This is a really good post detailing the reasons for your trade.
Is Bouchon Bakery the place in Time Warner Center? I’ve heard it’s supposed to be good. I’ve been meaning to go there.
yup time warner center, its the best food in nyc for the price
Cool. I will check it out.
I finished reading An American Hedge Fund this weekend. Incredibly entertaining and educational. I’m going to read Viktor Neiderhoffer’s autobiography next. Alot of people say thats good.
Tim, I was just wondering if you could share your thoughts on REED for this coming week. Which direction do you expect it to head in?
Tim nice post! I like how you went into details and your logic behind this trade. Extremely educational and understandable to a rookie like myself!
Hey Tim — have you ever tried Reed’s ginger beer? That stuff is intense–I can’t stand it. I actually shorted this puppy last fall around $6.50 when it was still on the OTC BB. I would’ve held a long time but I had better opportunities.
So TOS allows you to reserve shares to short before you actually short them? How does that work?
Wow, seem’ like a basic form of gambling. You should take your $$$ to an Atlantic City and annal your result there - more fun.
great post. love the detail. makes me with the markets were open every day!
I think this post is by far the best post since Ive been reading your blog (end of november 2007), proving plenty of useful infomation. I like it when you post the charts and circle your entry/exit points and point out your reason for the entry/exit of the trade.
Hey Tim,
Isn’t you bet size too big?
One of your main pieces of advice to traders is that they keep the bet size small in order to avoid risk of ruin. Yet, you consistently bet greater than 25% of the entire TIM capital on one trade. Isn’t this setting a poor example?
If some unforseen event were to occur during the trading day, you risk getting completely wiped out! Most of the legends/billionaire traders (Paul Tudor Jones, Richard Dennis, etc.) bet no more than 5% on any one trade.
That’s exactly how he got wiped out the first time. He’s just repeating history and bound to make the same mistake.
A and J Biggs, go under the sequence of picks in TIM and check the % of time he is profitable and the average amount made on wins vs losses. With that type of hit rate he should be taking even larger positions.
What if I gave you a bet at 2:1 odds (aka you make twice as money if right as you stand to lose if wrong aka Tim makes twice as much on profitable trades as he loses on unprofitable trades) when if it was random (aka no expectation of profit) the payout would only be 1:2 (aka Tim makes money 65% of the time)? What percentage of your account would you bet?
Yes J. There is a reason why guys like Tudor Jones have been so successful over the long run in the markets and maintain their net worth and billionaire status over the long haul. They learned early on never to play macho man with the market and have been around long enough to experience those “unforseen occassions” when things go awry. Even when they had tremendous conviction on a particular trade, they bet no more than 5%. Tudor often talks about being “afraid of the markets.” In essence, never betting too much of your bankroll on any one trade.
While Sykes has no doubt been successful betting large portions of his trading capital on individual trades, it is highly risky over the long run. Betting greater than 25% (e.g. $4,000 on one trade–REED–when the account size is ~$16,000) might work out in the short run, but risk getting hurt in the long run.
It is akin to the tortoise and the hare….Great defense not offense more often than not will win the game in the end…as the billionaire star traders have proven.
Thanks for the note Mike. No doubt Tim’s track record is absolutely steller in picking winners. However, long in the tooth, seasoned traders often talk about those “unforeseen events”–terrorist attacks, earthquake, etc.–when historical precedence goes awry, and things don’t work out according too plan. While these events have a very low probability, they do occur–and for this reason, these traders keep a managed bet size.
X–reread the post, direction is irrelevant, i look for setups like these
Goode–do a search on this site, answered the question too many times
Mikhail–this is researched gambling, the odds can be on your side, more fun than casinos, wait til we bring in shows and girls
Oliver-thanks, detailed posts of trades r easy, teaching concepts are infinitely harder
A–yup, i’m betting too big, but i’m determined to get over 25k…also i dont care to be the exact example, this is just the way i do it, beginners shouldn’t risk as much
J Biggs–no moron, not playing trades like this is how i lost 35%, never got wiped out, f$%% haters!
A–the first time around i used to bet 100% of my money EVERY TIME and i got burned exactly once…out of thousands of trades… in this niche the odds don’t catch up to u because you’re not guessing, you’re playing off simple market mechanisms…there is a big difference…and as u’ll read, i cut my losses quickly…u’ll see, i think people will start to come around when i get to 100k
Thanks Tim. Looking forward to following you towards your progress to 100K.
A, thank you for your well thought out reply.
I agree with your basic points but want to make 2 observations: (1) Was TIM really betting 25% of his account on the REED trade? He went short at $4.50 but very likely would have stopped himself out before $5.00 so his risk was more like $300 to $400 than $4,500. (In reading the very good book An American Hedge Fund I got the impression that the biggest mistake with cygt could have been not the initial big position size but how it strayed outside his trading edge, the increases in size of a losing position, the illiquidity, and the amount placed at risk by such a long holding period. (2) As you point out as well, Tim’s success rate on individual trades has been high. If that persists aggressive position sizing is reasonable. I of course agree with you that that sizing should not be so large as to ever be wiped out. We have to remember too that last time around Tim increased his initial trading stake by 100 to 200 times! He did lose 35% of his account, a very large setback. But after increasing his account a couple hundred fold.
Henry Blodget has bounced back, http://www.businessweek.com/ma.....el_opinion
Appropriately as Spitzer has fallen.
Hey Tim, I’m think’n very good odds of WSCI breaking out above 12.15 next week, especially with rally of general markets; quadruple whammy with pattern, good earnings, market rally, and lowfloat :) Balls to wall LONG on any weakness next 3 days. Target 14.93 min 20.88 max in morning after earnings - perfect time for one of your great shorts!
Sure WSCI could breakout but in no way is it guaranteed–could be a COIN-like double top…gotta wait and see…also probly not gonna short it cuz if it does breakout, it could be like BOOM or CALM of year’s past cuz it’ll be based on earnings not some faux-guru named Gartman/message board pumpers
Tim.
What do you think of BPAX, would you short this thing. It seems like everytime I am going to pull the trigger and short this the damn thing it keeps running higher. Is it too risky or is it setting up to be a great play, the three month chart looks like a supernova chart you post. What do you think?
yup its a supernova, possibly news related though we’ll see..only time to short was when i successfully shorted into weakness, u don’t short randomly into strength, thats why most short sellers are dumb losers
Tim- What blog software are you using?
To answer my above question, quoting Timmay: “i always try to sell the stock, and it’ll either say easy or hard to borrow. if hard, i pull up the chat window “trade support” and ask for them to borrow shares. they call up stock loan and try to find shares. works 9 o0ut of 10 times, just gotta plan ahead, reserve your shares early in the day or they may be gone. i then tell the chat guy to short the stock, usually $2-$3 higher than the current stock and i just lower the limit price if and when i decide to actually short the stock”
http://www.timothysykes.com/fo......php?id=87
Ok, can someone clear this concept up for me. I know buy low and sell high. I’m studying charts right now, but am I looking for a trend? When I buy and sell should I be using market or limit orders?
Hey Tim,
What brokerage firm do you use for trading? I just found out mine doesn’t let me short anything under $5. Is Zecoo good?
@ Jibri,
a) now might not be the best time to get into the markets - don’t have to be a pro to figure that out!
b) Investopedia.com is a great beginner’s resource
c) yahoo/google finance will tell you all the relevant data, along with SEC filings and chart action, that you need to know. Finding it and using it are two different things, though, so spend a lot of time practicing before you pull the trigger.
I know Tim uses ThinkOrSwim, which (I’ve found) has the best support and platform to use when getting started. They’re helpful, the software is intuitive, and it offers you a free fictional $100k account to play around in.
I guarantee that if you play on the fake account for a while, you’ll understand how much more difficult stock trading can be than mere ‘looking for the trend’ or ‘buy low, sell high’ adages.
Trust me - sideline yourself for a bit and you’ll absorb an inconceivable amount of info - and then step in down the road. Tim may be a bit risky for you (shorting is something many people recommend only AFTER understanding how to fundamentally do well with ‘long’ stock), but then again, who knows. I’ve been reading it for months and am constantly learning new things of all skill levels.
Stick around (and try ‘bumper bowling’ before you try to take on the Pro Bowling League). Tim knows what he’s talking about, that’s for sure.
I use and recommend Thinkorswim:
http://www.thinkorswim.com/tos.....de=0907_02
estoy preparado para hoy, these are my hard-to-borrows I’ve reserved, just in case any of their price actio si to my liking…my limit orders are far above their current, i’ll adjust ONLY if i want to trade them
-300 ASTI @16.99 LMT
-300 GU @16.99 LMT
-1000 BPAX @5.99 LMT
-1000 REED @4.99 LMT
-1000 QBIK @3.99 LMT
Let’s see how trading goes today, I am still holding my solar shorts
can’t borrow shares for ASTI
:(
AKNS displaying weakness