When to Go Big During the January Effect: 9 Top Tips

When to Go Big During the January Effect: 9 Top Tips — Key Takeaways

  • Watch former supernovas closely for potential January Effect spikes. See tip #3.
  • Listen to what the market is telling you. (This is foundational knowledge!) See tip #5.
  • There’s a time to go big and a time to play it safe. See tips #8 and #9.

What a start to 2022! We’ve seen some great January Effect spikers. You must learn about this strategy as soon as possible. January Effect plays are acting far better than most other OTC stocks.

Tax-Loss Selling and the January Effect: A Quick Review

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The good news is that because of how this works, it doesn’t matter if you missed plays so far this week. There should be more. A lot of beaten-down stocks got more beaten down due to tax-loss selling in December. Let’s start there…

How Tax-Loss Selling Works

The basic gist of tax-loss selling is that people want to save on taxes. Read more about tax-loss selling in “Holiday Trading Part II.”

A lot of these companies’ stocks are beaten down. So people sell at year-end to take the tax loss. That creates excessively beaten-down companies.

There’s one caveat … You don’t know 100% if it’s tax-loss selling or if it’s just a terrible company. But it doesn’t matter because the effect is the same.

Understanding the January Effect

Again, read the holiday trading post for details. What happens is that these stocks with terrible long-term charts start bouncing. Why? The companies and their promoters say “We’re turning a corner in 2022. It’s amazing!” And the stock bounces.

But it’s not because the company’s turning a corner. In reality, it’s all about the January Effect and tax-loss selling. Some people ask, “Why care about them at all?”

Brainwashed bag holders — often the same people who took year-end losses for tax reasons — look at the beaten-down stock as a bargain. They didn’t stop believing in the company. They just wanted to lower their taxes. So in January, they buy. Increased demand creates a bounce.

Now you have the basic idea of tax-loss selling and the January Effect. The rest of the tips are about position sizing and recognizing when to go big.

When to Go Big During the January Effect: 9 Top Tips

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A word of warning for new traders: You don’t have to try to go big. You don’t even have to trade. It might be better to watch. It’s perfectly acceptable to learn from January Effect plays.

And that leads right to the first tip…

Top Tip #1: Take What You Can On Fast Moving Plays

A lot of companies and their promoters are hyping stocks. Again, they claim the company is turning a corner. Sorry to be the bearer of bad news … Prepare for January spikes but expect the worst.

That said, a lot of these stocks move so fast that it’s tough to get fills. Especially when they spike right at the open.

That means I might put in more than one order. If you put in two smaller orders, sometimes you have a better chance of getting filled. Even then I’m getting partial fills a lot of the time.

Hint: If you’re a Trading Challenge student, go through my live trading webinars to see how I put in orders. Trading Mastery members can do the same.

Which leads to…

Top Tip #2: Position Sizing and the January Effect

I go for certain position sizes based on how ideal the setup is and how sure I am about it.

For example, if there’s a January Effect morning spike and it’s moving fast, I’ll take what I can get. If the same stock dips, bounces, then has a big panic … If the panic is big enough on a percentage basis I’ll try to go bigger.

There’s another thing to consider about position sizing on January Effect plays…

Top Tip #3:  Remember Former Supernovas

You must remember former supernovas. Remember, you’re looking for the most beaten-down companies. A lot of the best bouncers are former supernovas 90%+ off their highs.

Again, I’m taking what I can get. I don’t expect these stocks to come back. But I’ll treat a real supernova better than a one-and-done. That’s why you should know the stock’s history. Study the long-term chart to know what it has done in the past.

That will help with…

Top Tip #4: Recognize When (And When NOT) to Push It

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Just because a stock beaten down by tax-loss selling has a January spike doesn’t mean it’ll keep going.

A stock with a history of one-and-dones isn’t likely to keep going. But if it has a history of multi-day runs, it could do it again. Refer to tip #3 above.

A good example is Enzolytics Inc. (OTCPK: ENZC). It ran for two days before having a red day on January 5. But even on the red day, it had a big morning spike.  As I write, the overall market is down, but ENZC is having another green day.

I’m more inclined to be aggressive on ENZC than a stock like Wanderport Corporation (OTCPK: WDRP). It also spiked on January 5 but was more of a one-and-done.

So look for January Effect spikers, but also…

Top Tip #5: Listen to the Market

I’ve been playing these January Effect plays too safely. I recognize they’re January Effect plays. But I’m trading them almost too conservatively. It’s almost like the market is saying, “Be more aggressive right now.” 

Even after 20+ years of trading, I collect new data every day. Which leads to…

Top Tip #6: Learn From Every Trade

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This is key in any market, pattern, and seasonal play. If I take a trade like this $392 win on Touchpoint Group Holdings, Inc. (OTCQB: TGHI) there are lessons. OK, I made 20% on that trade. That’s good. But it’s the kind of play where you should be more aggressive.

It was a first green day with little resistance. I can’t complain about the win. But I’ve had this mindset of taking 10%–20% recently. Now that we’re seeing January spikes, I have to learn from them.

Which is why the next tip is so important…

Top Tip #7: Judge Your Trade Against the Potential of a Trade

So many of these plays have kept going. I’ve been through a lot of shoulda, coulda, woulda this week. Had I held my TGHI trade overnight, It would have been a roughly $1,000 profit. If I could go back and take a bigger position and hold overnight you get the idea.

This is how I judge these plays. I like taking the meat of the move. And I like taking 10%–20% gains. But…

Top Tip #8: Go Bigger When the Play Is Deserving

The market’s telling us these plays have momentum, they have juice. So you have to try to ride it the best that you can.

For me, that means…

  • Going for bigger percent gains.
  • Taking bigger positions.
  • Pushing it a bit.

It’s tough to get out of the habit of being conservative. I’ve been trading conservatively for several months. And that protected me in a slower market.

And that brings me full circle…

Top Tip #9: Strategies Go In and Out of Favor

I don’t know if the January Effect will continue. A few weeks ago I was dip buying multi-day and multi-week runners. For better or worse, a lot of those stocks are dropping 50% in a few days with no real bounce.

So always consider the shifting market trends. For now, I’m focused on morning spikers — especially former runners. Every day I’m prepared for them near the open. Yes, I might not get in until the dip off the first spike, but it’s still a morning spike.

Learn More From Recent January Effect Trades

Watch this video. It goes over the trades in this post in much greater detail…

Early January is when the January Effect is strongest. So now’s the time to learn from it and/or push it. But at the same time, don’t chase. Again, you don’t have to trade. Sometimes the best trade is no trade at all.

As always, follow rule #1 and cut losses quickly

Trading Challenge

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Everything in this post is just a small part of what Trading Challenge students learn. The January Effect isn’t the only seasonal indicator we watch.

And while I often call these types of plays self-fulfilling prophecies, that doesn’t mean you shouldn’t learn about them or how to take advantage of them.

Apply for the Trading Challenge Today

No lazy losers, though. Apply if you’re dedicated, determined, and looking to be the best you can be.

What do you think of recent January Effect plays? If you understand, comment below with “I will listen to the market.” Either way, comment below. I love to hear from all my readers!

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