Welcome to another edition of the Millionaire Mentor Update — every week I post a trade or trading lesson. I also answer two or three student questions. Finally, I love to share an update about my travels, charity work, and passion for great food.
My life is awesome. Had I not made a decision nearly two decades ago to learn to trade penny stocks, it might be very different. My main gig now is teaching people just like you to trade. If you’re ready to get started, apply for the Trading Challenge today.
I recently spent a week in Mykonos and three days in Santorini. But I’m checking in from my favorite city in the world: Positano, Italy. I’m here just chilling and eating amazing pasta. I’m also recovering from months of whirlwind travel.
The place where I’m staying might just have the fastest Wi-Fi in Italy. As a result, teaching and trading are a little easier. And, the time zone here is great for trading the U.S. markets.
Let’s get into a trading lesson…
Table of Contents
- 1 Trading Lesson of the Week
- 2 Trading Questions from Students
- 2.1 “Tim, $DCGD has been really impressive. Given Discovery Gold is…
- 2.2 … why is it running?”
- 2.3 “You often reduce position size on an FGD near the close to lock in profit/reduce risk on overnight holds. How do you decide how much to take off?”
- 3 Millionaire Mentor Market Wrap
Trading Lesson of the Week
This week’s trading lesson is all about patience.
Patience Is Key to Long-Term Trading Success
Like I said, I’m in a good time zone to trade, but I’m not necessarily taking more than one or two trades in a day. I think a lot of people can learn from this.
Too many people are conditioned to work hard. I get it. You want to make money, so you’re trading a lot. Consequently, you’re churning and burning your account like so many newbies do. It seems very tough for newbies to learn patience.
The best trades don’t happen all the time with penny stocks. Your approach has to be counter intuitive.
What do I mean by that?
Sometimes the best thing you can do is go outside or go and have fun with your friends. That’s better than trading a crappy setup. Even though it might not feel like it at the time.
Normally, you wanna trade. You wanna grind. Then you start justifying your trades….
“You know, this setup wasn’t that good, but at least I learned something…”
Well, maybe you shouldn’t have been in the trade in the first place. I would rather you undertrade than overtrade. Especially during the summer.
So, learn patience and trade less.
If you don’t want to go out with your friends and you still wanna work … guess what? You can study the past. I have 6,000 video lessons. Not to mention DVDs and over 1,000 webinars. Trading Challenge students get access to all archived webinars.
All My Top Students Developed Patience
Every. Single. One.
Most of my top students struggled for a while. Tim Grittani wasn’t consistent for nine months. He made almost nothing. Let’s face it, there’s a lot to learn. But even if you fully dedicate yourself to learning every aspect of trading, in the end, it’s you against you.
By ‘you against you,’ I mean you have to learn to control your emotions. You have to develop a sense of peace with not trading. Learn to take small losses instead of holding and hoping … turning a mistake into a nightmare.
Remember: patience is part of the process. Learn to love the process. Likewise, learn to be patient not only with the process but also with each day as a trader. When there aren’t great trades … study the past. Or go have some fun.
Now, let’s get to a few trading questions from students…
Trading Questions from Students
Before I answer this week’s trading questions…
I want to remind you, the best way to immerse yourself and build your knowledge account is to…
… join the Trading Challenge.
The answers I give here, frankly, are not as in-depth as those I give during live webinars.
“Tim, $DCGD has been really impressive. Given Discovery Gold is…
a shell company…
recently purchased by a hedge fund manager…
going through a name/ticker change…
but … has ZERO products or revenue…
… why is it running?”
First, when you see a ticker with the dollar sign in front — that’s a common way of writing it for chat rooms and Twitter. When you post a tweet with a $ in front of the ticker it creates a tag. In the Trading Challenge and TimAlert chat rooms, it creates a tag so when you click the ticker it pulls up a chart.
First, check out the one-month chart:
And now, my answer to why DCGD is running.
I don’t care.
I think too many people worry about the why, why, why…
… instead of just listening to the market.
As for the points about Discovery Gold — there are rumors galore. It is a holding company. And it is now controlled by somebody supposedly managing a billion dollars. So, there’s something behind it.
But the bottom line is…
… I don’t care why it’s running.
Pay Attention to Price Action
Focus on price action when you’re trading these kinds of stocks.
Here’s the key: On the first four trades, I nailed it every time because the price action was similar each time.
For example, on August 2, I bought the Friday mid-day spike because I recognized the price action. It was the exact same price action as the last time it ran 50% in a day. That was on July 22. It actually ran more than 50% on July 22 — more like 150%. The point is, the price action was the same. Even the time of day the spike gained momentum into the breakout was similar.
Pay Attention To Patterns
And on August 5, I banked on it again when it went from red to green.
(Note: ‘Red to green’ refers to the stock price relevant to the previous day’s close. When a stock’s price is below the previous day’s close, it’s red. And when it moves above the previous day’s close, it’s green. The red-to-green breakout is one of the patterns I teach students to look for.)
So, I banked on the red-to-green move and took my 10%. It turned out to be a 30% winner — so I underestimated it.
Know When to Dig Deeper
I suppose there could be times when you really need to know all this stuff. Like if you’re a short-biased trader looking for reasons why the stock would fail. I discussed it a little in the last edition in a question about reading SEC filings.
Update: On August 8, DCGD dropped more than 31% from the previous day’s close. Again, I pay attention to price action. This time I was looking for the dip buy. I took a small loss when I misjudged the bottom on the morning panic. It did manage to bounce nicely off the low of $0.611 — just a little later in the day than I expected.
Final trading question…
“You often reduce position size on an FGD near the close to lock in profit/reduce risk on overnight holds. How do you decide how much to take off?”
What Is a First Green Day?
FGD stands for first green day. Watch the video below to learn the basics of the first green day pattern. Then, read on to understand why I sometimes alter my position size on FGD trades.
Back to the question…
Sometimes I take off the entire trade.
For example — when I made $1,950* on my August 2 DCGD trade, I could have held overnight. It was closing relatively strong, although not at its highs. But the trade had already hit my profit goals so I took the whole thing off.
(Remember, my results are not typical. I put in the time and dedication to develop exceptional skills and knowledge. Many traders lose money. That should keep the lawyers off my back. Love ‘em … but they get picky when I start talking about profits.)
Now, if the stock hasn’t hit my profit goals, I might take half off. Likewise, if the stock is looking weak, I might take three-quarters off. That way I can give the last quarter a little bit of a chance.
You have to choose based on…
- Your profit target.
- What that market is doing.
- Your own schedule.
- All the other indicators I talk about in my Trader Checklist.
There’s not one indicator like so many people want. There are seven. Also, it’s a sliding scale. That’s exactly what the Sykes Sliding Scale is for.
So — to answer the question — I try to judge. It’s not an exact science. Sometimes I sell half when I shouldn’t have sold any. Other times, I sell all and it was the right move. It varies.
Because of this, you can’t make one general rule. I just like to reduce risk overnight. That’s a general guideline rather than a hard-and-fast rule. My instinct is to play it a little safe.
So, whether you sell a quarter of your position, or a third or whatever, you have to judge. How do you judge? Again, it’s based on the trade, the chart, the market, and your schedule. You should consider all the indicators in the Sykes Sliding Scale.
Millionaire Mentor Market Wrap
That’s the latest edition of the Millionaire Mentor Update in the books. I hope you’ve added to your knowledge account. The trading lesson can help you build the foundations for trading. The answers to trading questions can help you understand the nuances. It’s all part of the process.
For more in-depth knowledge and resources, join the Trading Challenge. When you join, you’ll get to ask questions like these directly during one of the weekly webinars.
Are you a trader? How do you use the Sykes Sliding Scale? Comment below. If you’re a total newbie, comment below with what you’re doing TODAY to build your knowledge account.