It’s time for another update on the summer trading spike! Remember, this is all made possible because I studied my ass off and learned to trade. That’s why I created the Trading Challenge — because I want more people to experience freedom. Apply now.
A HUGE THANK YOU to everyone who watched and shared the “Save the Reef” documentary. I’m writing an entire post about it — it’s coming soon. If you haven’t watched it yet, check it out here: 50 Minutes to Save the World.
Table of Contents
Those Incredible Little Portuguese Custard Tarts
They’re called pastéis de nata … and they’re delicious.
In case you haven’t guessed yet, I’m in Portugal working on a new project for Karmagawa. And I’m eating a ton of pastéis de nata, like maybe 50 in the last four days. Eating and working.
Europe is a friendlier time zone for trading, but I don’t see many great plays right now. The U.S. markets open at 2:30 in the afternoon over here. (Most of the locals say 14:30. Pretty much all of Europe uses 24-hour time.) Anyway, I love trading from Europe because of the time zone.
I am looking, but I’m not seeing any great opportunities. So, I’m not forcing trades.
Which segues nicely into…
Lessons from Recent Trades: Modulate Based on the Current Market
When the market is a little slower…
… or your favorite pattern isn’t working…
… you can modulate.
For example, my pattern — dip buying morning panics — hasn’t really shown itself lately. The right thing to do in a situation like this is to modulate the way you trade. Take smaller positions, test new strategies, and keep everything very small.
You can play aggressively when it’s a hot market and play more conservatively when it’s not your ideal market. Like it is for me now. It’s not my ideal market, so I’m playing small. I’m taking small wins and small losses.
Let’s take a recent win FOR EXAMPLE…
Vuzix Corporation (NASDAQ: VUZI)
I nailed a play on VUZI on June 25 using a very simple strategy. But as I mentioned above, I adapted rather than trying to force it.
I think a lot of people overcomplicate things. I want to dip buy multi-day, multi-week runners. And I don’t want to chase. I’m always looking for the first red day, the second red day … and whether it will possibly have a third red day. Then I hope for a big morning panic.
This one did not have a gigantic morning panic. Keep the overriding idea in mind here — modulate. Adapt to the market. As morning panic dip buys haven’t been showing themselves, no massive panic was no surprise.
VUZI dropped at the market open from $4.06 to $3.84. I wanted a bigger panic. I would have taken a bigger position if it was a bigger panic. It did panic right near support. It’s important to find the previous support/resistance.
This video will help you understand support and resistance. (It takes 4 minutes and 40 seconds to watch.)
Now check out the VUZI chart below. The pink line shows roughly where resistance became support. I’ve circled the areas where price approached — or even slightly crossed — that line. Pay attention to the fact it is not an exact science. In this example, support was more of a range than a specific price.
As you can see on the chart, the first two yellow circles from the left show resistance in the $3.90 price range. Now look at the third circle from the left: once price broke through $3.90 convincingly, it became support. The circle on the far right shows the dip I bought.
The next chart shows my entry and exit points:
I said in my watchlist on June 25 that this is a choppy stock. That’s another reason for being conservative — I don’t like choppy stocks. But the choppiness meant I didn’t expect the stock to have an exact support price.
As you can see from the chart above, the price dropped through the $3.90 line. But it didn’t break support convincingly. That’s important. That’s why I dip bought it.
I also got a little lucky, because about 10 minutes into my trade, Vuzix issued a press release announcing the availability of the DJI Drone app on their Blade Smart Glasses. The idea is that you can fly a drone and see the camera’s output in the smart glasses. Not a huge press release, but it gave it a little boost.
Let’s get back to the big idea. When the market isn’t ideal for you … modulate.
I’m not comfortable with this stock — it’s very choppy. We didn’t get the massive morning panic I wanted. I tend to be more aggressive and more comfortable holding stocks when they fit my pattern. I’m looking for massive panics, the perfect pattern, and perfect stocks. VUZI was none of the three.
So I modulated. I set a very conservative goal to make 20–40 cents a share. I nearly made that goal. But I didn’t get greedy, and I didn’t wait around too long when it hit resistance in the $4.09 to $4.10 range. As I often do, I sold too soon.
This was a good single. I played it safe and I’ll take that every time. Write this down in your notes: Adapt to the current market. Modulate based on what’s happening. Never force trades.
And now it’s time for some…
Questions from Students
“Tim, what are your thoughts on the June rally in the markets? Does the reach for new highs change the way you trade?”
Any time a stock or a market is near its new highs — or old highs — the potential for a breakout is huge. A lot of people like to call the top. They say, “The market will never reach this. Bitcoin will never reach this…”
When you have a breakout showing that the people who called the top were wrong, it’s a good thing. It shows that the market can keep going forward. That’s fantastic.
Here’s a great example: the S&P 500 1-year chart:
We had the big consolidation toward the end of 2018. A lot of people — myself included — thought it was gonna be something bigger, like a major correction. Turns out it was just a healthy consolidation. Now we’re reaping the rewards and the market looks solid.
If we get a trade deal with China, it could really blow up.
Last question for this edition…
“When you’re conflicted about taking a trade — say in a cold sector but the pattern is solid with good news — what do you do?”
Use the Sykes Sliding Scale all the time. Sometimes you’ll trade a hot pattern in a cold sector. Sometimes you’ll have a hot sector, but the pattern doesn’t work the way you think it should. There are so many ways to mix and match. You just have to try and see what works.
The Sykes Sliding Scale isn’t an exact science. But at least you can use the seven indicators that I’ve refined over 20 years to help you make more educated decisions. It’s rare that you’ll have a perfect pattern, a perfect sector, and a perfect stock. It’s extremely rare to get a setup where the sliding scale is 100. That just doesn’t happen very often.
If you’re my student, you know all about the Sykes Sliding Scale. If you’re new to the blog or my teaching, I suggest you watch my Trader Checklist guide. Do yourself a favor and watch the entire guide and take notes. It distills years of trading experience into a sliding scale you can use to pre-grade a trade. It’s subjective, but it can help you with the process.
Millionaire Mentor Market Wrap
That’s another edition in the books. I hope you’re using time wisely. Study hard, the right way, every day. Set a schedule and follow it. Put in an hour a day … you’ll be amazed at how much you learn over time.
- Be willing to modulate. Adapt to the market.
- Watch the overall market as we’re close to new highs again. Roughly three out of four stocks follow the overall market.
- Use the Sykes Sliding Scale to help you make better-educated trading decisions.
And if you get to Portugal, try the pastéis de nata … soooo good.
One final thought: if you’re not yet a Trading Challenge student, apply now. The amount of information shared in the live webinars is, frankly, amazing.
Traders old and new: How are you adapting to the current market and summer trading spike ? Are you willing to modulate? What new strategies are you testing? I love to hear from all my readers. Comment below!