It blows my mind how many newbies only focus on one indicator and they believe that’s a good enough reason to buy a stock…
That’s CRAZY!
If you only had to focus on one indicator, there would be a lot more successful traders out there…
But trading isn’t that simple and unfortunately there are multiple things you need to think about before a trade…
And that’s why I came up with this sliding scale to help traders like YOU answer some of the most important questions before you make a trade.
Here’s how it works!
Table of Contents
Sykes Sliding Scale
Many of you may be thinking, what’s a Sykes Sliding Scale?
So many traders keep asking me what stocks to buy, what to look for, and how much they should risk…
After hearing these questions time and time again, I came up with a process to help traders answer those questions!
Listen, I want all of you to be more prepared than ever…
But unfortunately, I won’t be here forever…
So now’s the time for you to learn, and that’s why I continue to share as much information as possible with you every single day!
On Monday, I made a trade on HUB Cyber Security Ltd. (NASDAQ: HUBC)…
But before I made that trade, there’s a strict process I like to follow…
Let me show you what that is!
P – Pattern/ Price
Way too many newbies like to chase after a stock that’s already spiking higher…
And that just makes me cringe every time I hear it.
Focusing on the chart pattern is something I go over time and time again with my students to help them better understand what patterns are the best for them to capitalize on.
Let’s apply this rule to my HUBC trade to help give you a better idea…
Looking at the chart from Monday, HUBC was spiking into the close, but what most newbies didn’t recognize is that it was about to face a key resistance area.
Source: StocksToTrade
Not just once, or twice, or three times… but eight times over the last six months!
Source: StocksToTrade
You’ve probably heard me say to sell into strength, and that’s what you should’ve been doing if you had a position earlier in the day.
When I started to see HUBC running higher, I wasn’t looking to buy and hold…
I was simply looking to trade the breakout above $0.80, but I was aware of how many times it has failed in the past.
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So as I wasn’t expecting too much I gave it a 10 out of 20 on my sliding scale.
R –Risk/Reward
What’s the risk to reward for your trade?
More often than not, you see many traders risk a lot more on their trade with minimal upside.
I don’t like trading something with minimal upside. If I were to risk 5 cents a share for a possible 10-cent gain, that’s only a 1:2 risk/reward. I want something more along the lines of 1:4 or 1:5 risk/reward.
With HUBC, I figured If I bought it at $0.80 it could get to $0.90, but I know if it doesn’t break out I would’ve cut it at $0.78-$0.79 so a 1:5 risk reward.
This is a solid risk/reward, so I gave it a 20 out of 20 on my sliding scale.
Source: Profit.ly
E – Ease Of Entry
If I were to ask you how easily could you get in and out of your position, most of you should say pretty easy…
But I do see traders get into an illiquid stock that makes it difficult to get out, especially if you have a large position size.
With HUBC, this wasn’t an issue so I gave it a 10 out of 10.
P – Past Performance / History Of Spiking
You’ve probably heard me say this before, but you need to always look at the history of any stock before you trade, period.
One thing I always look for is if it has a history of spiking because more often than not, it can spike the same way with the right catalyst or even from these over-aggressive short squeezes.
Source: StocksToTrade
Looking at HUBC, there wasn’t much history of it spiking, so I didn’t expect it to do it this time around on minimal volume…
So I gave this a 5 out of 10.
A – At What Time Is It? Personal Schedule
I LOVE trading early in the morning!
Most of my trades revolve around the morning panic, but I can’t say that I don’t make any afternoon trades based on what the market has to offer.
As HUBC was trying to break out at the end of the day, I had to give it a 15 out of 20.
R – Reason/Catalyst
We’ve seen how powerful news catalysts can be with penny stocks…
And at any moment, news can happen, that’s why I always have StocksToTrade Breaking News open…
But with HUBC, it’s an Israel security play, and with all of the conflict going on in the Middle East…
It’s a good catalyst for this stock, but bad for the world, and you don’t know what will happen…
So I’ll give this a 6 out of 10.
E – Market Environment
This overall market was pretty strong on Monday…
So I will have to give this an 8 out of 10.
Here’s how everything looked once I was done…
74 is a decent score, so I went ahead and traded it…
Source: StocksToTrade
I bought HUBC at $0.812 and sold it at $0.80 for a $104 loss. (Risked $7,064.40).
Final Thoughts
I get that this may seem like a lot, but the more you practice and get familiar with how these penny stocks work, the easier this thought process will be.
I want you to get used to focusing on what matters and understanding the process can help you in the long run.
With any trade I make, I like to review them…
I went through the same questions as earlier and came up with a 58/100, not as good as my original score.
Trading is all about finding the right opportunities…
And tomorrow, Wednesday’s Federal Open Market Committee (FOMC) could spark something big in the market…
Stay safe and I’ll see you in chat.
-Tim
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