How To Trade Penny Stocks Without The Stock Promoter BS. Experience led me to create Profit.ly, a community of over 84,000 traders who share their performance and trades openly to help each other learn & improve and Investimonials.com, a community of over 65,000 investors & traders who have reviewed over 25,000 financial products
This is a special edition of the Millionaire Mentor Update … it’s a lesson on goals!
Yes, I’ll share a few trades with you. But instead of answering student questions this time, I want to get you thinking. What I want to share with you may sound a little counter-intuitive. But it’s extremely important if you want to be both rich AND happy. So read on…
As always, I need to acknowledge that trading makes my life possible — my travels, charity work, and all I do as a teacher. My first job is still trading. It’s no longer my primary job — but it’s my first job. I want to teach you, but only if you’re willing to work hard. If that’s you, apply for the Trading Challenge today.
Santorini Is Awesome … Except for the Wi-Fi
So I’m in Santorini. I’m here talking with local animal shelters, trying to trade, and trying to keep up with my teaching duties.
I was supposed to do a special four-hour live Q&A webinar with one of my top students, Huddie, on July 9. But the Wi-Fi is so bad where I’m staying, we had to cancel the live session and record it. Luckily we had well over 100 student questions lined up in advance.
If you’ve never been to Santorini, it’s beautiful. The whitewashed buildings, the view of the Aegean Sea from the clifftops — it’s all stunning. The other side of the island slopes down to sea level where you can find great beaches and resorts. If you like to travel as much as I do, add it to your bucket list.
Also, in keeping with my travel tradition … I’m eating way too much Greek food.
As always, I’m ready to trade if the right opportunity presents itself. But with sketchy Wi-Fi, you have to be careful. So I really only took a few trades in the early part of the week. I finally found a place with a good connection — I’ll talk about one of those trades next time.
So I took a small position with a goal of selling into a breakout in the low 50-cent range. I took profits into a little spike — not as much as I wanted, but I was happy to take the single.
Here’s the chart:
KBLB chart: July 8, 2019 — 1-minute candlestick
By the way, if you’re new to reading stock charts, check out this post on how to read stock charts. I bring up that particular post because it featured KBLB, and it can help you get up to speed on the basics. Also, reading charts is an essential part of trading.
As you can see from the chart above, it didn’t spike like I expected. Instead, it dropped hard. That’s exactly why you can’t hold and hope. When a breakout fails, you have to exit quickly.
Rule #1: Cut losses quickly. In this case, I cut for a small profit before it tanked. When a trade doesn’t go the way you want, get out. Especially if you’re new or trading with a small account.
United Cannabis announced a big contract roughly an hour before the market opened on July 9. As a result, the stock was gapping up. I figured it was worth a shot for a big spike. But I took a small position size because those types of moves can be quick.
Let’s take a look at a 1-year chart first:
CNAB chart: 1-year chart, 1-minute candlestick — big volume spike on July 9
Notice that CNAB is a former runner with a history of overnight gap ups. Also, notice the huge volume bar on the far right. There was only one day with higher volume in the past year. That kind of volume spike tells you there’s a lot of interest in the stock.
Now take a look at the chart from July 9 — the day of the trade:
CNAB chart: July 9, 1-minute candlestick
As you can see, it did spike and it was quick. I had a nice 9.52% gain in just over 10 minutes without getting greedy. This is why I love penny stocks!
With CNAB holding near its highs in the late morning, I alerted a potential re-buy into the market close. As it turns out, it was more of an afternoon breakout that dropped back to midday support. Some students reported successfully trading the breakout.
Now, before I get to the big lesson for this edition of the update…
I want to reiterate that I find stocks using StocksToTrade. Both KBLB and CNAB popped up on one of the built-in scans. Plus, the news catalysts I shared with you were right there in the software.
I got to thinking about it after reading the responses. It made me realize how important that idea is: to prioritize freedom over making money. In the end, I made a video lesson about it for my Trading Challenge and PennyStocking Silver students.
Because it’s so important I want to share the general idea here on the blog. Bear with me for a minute…
How To Prioritize Freedom to Live Your Dream Life
I want you to prioritize freedom, but let me clarify…
I used the word freedom in my tweet because I know a lot of people want to make a lot of money. And money is part of it. But I don’t think money should be your focus. Money won’t make you happy.
What I want you to do is prioritize your dream life. For you to live your dream life, it will require money.
So, what gives?
The reason I say to focus on your dream life over just making money is because I know a lot of miserable rich people.
That may sound counter-intuitive to some of you. But it’s true.
Check this out…
On one hand, you have those who are miserable because they have next to nothing and struggle to make ends meet. It’s scary and stressful. Then you have some rich people who have anything and everything they want … and they’re also miserable. Maybe it’s not as scary or stressful, but they’re still miserable.
A lot of those rich folks are bored. They’re shocked that they focused everything on making money, and the money didn’t buy happiness.
I can’t tell you how many rich people I know who are like this. It blows my mind that they won’t talk about it publicly. Also, our society values ‘getting rich’ above pretty much anything else.
So here’s my point…
Money can give you the freedom to do what you want — but you need to have a purpose. Otherwise, you can end up just another miserable rich person.
Look, I’ve been there. I was one of those unhappy millionaires without a purpose. It sucks.
I know. You’re probably thinking, “Oh, you poor millionaire … that’s so sad.” Cue the eye-roll, right?
I realize it sounds bad. Believe me when I say I want you to get rich. But I don’t want you to be in a position where you’ve sacrificed everything for that one goal while your life has no purpose or meaning.
For me, I found a purpose when I started doing charity work. Suddenly, my whole life made sense. It was like the circle was complete.
Yes, I still get to enjoy beautiful hot tubs like the one in that tweet. (By the way, that’s Villa Honegg in Switzerland if you want to add it to your vision board.) Yes, I still get to help change the lives of my students. And yes, I still get to trade. But my purpose and my passion is charity.
If I focused only on making money, I could probably be a lot richer. I could even give more to charity. But I wouldn’t be happier. I spend time and energy on the things that make me happy. My accountant thinks I’m crazy.
Thing is, I’m a better teacher when I’m happy. I’m better all around when I’m happy. So freedom in the form of my dream life is my priority.
Anyway, when I talk about the search for my next millionaire student…
I’m NOT looking for somebody whose only focus in life is money. I’m looking for someone who understands that money can make your dream life possible.
Your dream life. Not mine. YOURS.
I’m so proud of my top students because they seem to all have their heads in a good place. And that’s what I’m looking for in all my students.
I don’t want you to just be my next millionaire student … I want you to be my next HAPPY millionaire student. Yes, that means you have to do the work to make the money. But what happens if and when you succeed?
That’s why my teaching focus is NOT on how can I get more students. It’s not even how I can get more rich students. My focus is on how we can do this the right way so you can be mentally prepared for your dream life.
So I want you to think a little bit more about what you want in life instead of just money. I’ve seen a lot of millionaires with nasty habits. And a lot of them developed those bad habits to try to cope with their utter disappointment at being rich.
Think counter-intuitively or it will catch up with you. Be prepared to overthink it a little. Most people don’t think about it enough.
Just like I tell my Trading Challenge students: preparation is key. Overprepare for the stock market battlefield. Overprepare for your dream life. I want you to live your best life — even after you get rich.
Look, I’m not saying you should be living paycheck to paycheck or month to month…
… that’s no way to live.
I’m saying prioritize your dream life and think about it. A lot. Make the money so you can have your dream life. Then the money can fuel your purpose instead of being a drag.
As I write, the Save the Reef documentary I’ve been telling you about for several months has 2,621,282 views. That’s a phenomenal number for any YouTube video. For an environmental documentary, it’s fantastic. Outstanding. Inspirational. My Goal is to save the world from environmental degradation.
But it’s not enough.
You read that correctly.
When a 10-minute video of the ‘best wedding proposal ever’ (seriously?) with 544K views is trending…
…but our documentary that could literally change our planet’s future is NOT…
…something is wrong.
Our priorities are skewed. And we need to do something about it.
“50 Minutes to Save the World”
“I’m about to share an urgent message with you. Our main source of oxygen is on the verge of collapsing. Whether or not you heed the warning in these next few moments will be the difference between our survival or our extinction.” — Amir Zakeri, director and producer of “50 Minutes to Save the World”
Please understand something. Amir and the team didn’t create the documentary to be discouraging. We want to spread a message that inspires positive action. When you watch it, embrace your power. Get inspired. Step into your role as part of the solution.
Out of Sight, Out of Mind?
Do you like visiting the beach? I don’t even like putting my head under water. But what I’ve learned over the last six months has been eye-opening. I appreciate the oceans now more than ever.
The problem is, the sea is full of plastic. Chemicals are killing the coral reef. We’re at a tipping point and most people aren’t even aware of the problem. Tourists visit places like Tahiti and Hawaii and everything above the surface looks just fine. But only feet below the surface the coral reefs are dying.
This is not some kind of ‘it could happen if we don’t change’ warning. It’s happening now. Coral bleaching is killing the reefs. Once the coral is dead, entire ecosystems collapse.
What Is Coral?
Corals are tiny, soft-bodied organisms related to sea-anemones and jellyfish. But here’s the thing: coral colonies — what we call coral reefs — are the foundation of huge marine ecosystems. Roughly 25% of marine species live near coral reefs. Take away the reefs and entire ecosystems die.
But it goes beyond trying to save the reefs to save the ecosystem.
Oceans provide roughly 70% of the oxygen in the atmosphere. The air we breathe depends on healthy oceans. Ocean health depends on coral reefs — they’re like the rainforest of the seas.
And they’re dying.
Again, please don’t get discouraged. Frankly, we don’t have time for that. Get inspired.
Using Social Media to Change the World
Social media is a recurring headline grabber — sometimes for the wrong reasons.
Whatever. Check this out…
There’s a positive side to social media. And I want to focus on that. I want you to focus on the positive. Because that’s how things are going to change for the better.
If I share something on social media and my followers share it, then their followers and friends share it … pretty soon it’s spread far and wide. That’s cool. But we need your help. Frankly, the oceans need your help.
If you haven’t watched the documentary — do your children, grandchildren, and great-grandchildren a favor: watch it today. Now, if possible.
If you have watched it, thank you. Now share it. Spread the word. Get someone who hasn’t seen it to watch it. Every single view makes a difference.
Change Your Mindset to Change the World
Look, I’m straight up — you know that. I haven’t always had the mindset to change the world.
I admit — there was a time I was driven by money. I just wanted to get rich. After I got rich I wanted to show it off to any and all. But I’ve evolved. I think about money in a different way. Check out my recent instagram post. (Be sure to swipe right see how my priorities have changed.)
I hope you’ll start to think about money in a different way.
Don’t get me wrong, I want you to have all the money you need. Money can change lives. It can change your life and it can change a lot of other people’s lives. I encourage you to get a lot of money in your account. But I also encourage you to start thinking about how you can spend it. How can you donate? What is it good for?
Money Is Cool but It Won’t Make You Happy
I spent what some consider an enormous sum of money on the “Save the Reef” documentary. I look at it this way: I did what I could with resources under my control.
Money is more than a number in your account. This isn’t some video game. I know people like that — all they do is keep score. And they’re miserable. They hoard their money. They don’t spend it, never treat anyone, and get the biggest high out of counting it. That’s no way to live.
I hope you have enough money to live well — but don’t think of it as a video game where you’re trying to get the high score. Use the freedom money gives you to evolve.
We learned about coral bleaching: how coral loses the symbiotic algae that produce the food they need to survive. We learned how when the coral dies you lose an entire ecosystem. We loved the work Great Barrier Reef Legacy is doing so we donated $50K for a new boat they’ll use to get researchers out to the reef.
But we also got inspired by the Reef Restoration Foundation. They establish coral nurseries using small cuttings from coral that survived previous bleaching events. They attach the coral to underwater frames and grow them. From one cutting, thousands of new corals can be created.
Belize Resort Fights Back
In Belize, we show how Hamanasi Adventure & Dive Resort has eliminated ALL single-use plastic from their resort. They’ve switched to eco-friendly local sources for produce. They sell only reef-friendly sunscreen.
And we were inspired by Karim, a 12-year old boy who gets it better than most adults:
“It’s a never-ending rain of plastic. It’s really hard to clean it, but it’s not really hard to adjust your mentality. It’s everywhere, even the small little bits count. And a small thing can make a big difference.” ~ Karim, 12-year old featured in the Belize section of “50 Minutes to Save the World”
Educating Tourists in Seychelles
In Seychelles, we found inspiration from the Marine Conservation Society of Seychelles. And from our hotel: Raffles. They’ve created a snorkeling tour where they educate guests about what’s happening. And they’ve stopped using plastic straws, plastic bottles in guest rooms, and plastic bags.
Here’s the problem. Those bans don’t come into effect right away. Sounds insane, right? The ban in Hawaii doesn’t come into effect until 2021! That’s two more years of coral poison dumped into the Pacific.
We need to act NOW.
Heck, even Mexico is doing better. At the Xcaret and Xel-Há ecological reserves, they confiscate reef-killing sunscreens when you enter. You can have them back when you leave. But here’s a better idea: Don’t purchase them. Don’t use them. Tell others.
Frankly, if nobody is willing to do anything, we’re kinda screwed. Marine life, the oceans … I’ll go so far as to say our species. We are an endangered species given what’s happening around the world. It’s time to open your eyes and it’s time to help others open their eyes.
Share the documentary on your social media accounts. If you’ve shared it once, share it again. (Be nice — we’re all human beings dealing with other humans. Remember, we’re trying to inspire rather than discourage. Toxic thoughts are almost as bad as toxic oceans.)
STOP using sunscreens with oxybenzone or octinoxate. If you have them in your house, dispose of them. (Please, research the best method of disposal. Some locations have lined landfills. Other locations have specific instructions. Ten minutes of research goes a long way toward proper handling.)
DO use a mineral, non-nano zinc oxide based sunscreen. It’s not harmful to the coral and it can’t be absorbed by the coral. This mitigates toxicity.
Support Save the Reef on Karmagawa. Get some gear. We donate 80% of profits to charities. When you buy Save the Reef gear it goes to charities involved with this important project. (If you haven’t watched the documentary, do so. We already donated $90K to three reef projects.)
It’s more important for you to understand the process of making a watchlist than to get so-called hot picks from me. Or anyone else.
Your goal should be to become a self-sufficient trader. Don’t follow my alerts — except to understand my thought process.
Learn to recognize patterns but also be able to recognize when they aren’t working.
I provide a daily watch list to Trading Challenge students. Stocks come and go. I teach trading, not investing. Join the challenge to get my daily watchlist.
Do your own research. It’s much better for you to understand why I’ve put a stock on the list than to blindly think it’s a potential trade.
[Disclosure: Some of the stocks mentioned below have been traded or otherwise discussed by Tim Sykes as part of his daily watchlist provided to Trading Challenge, TIMalerts, PennyStocking Silver, and Millionaire Masters Program subscribers. Tim Sykes may or may not hold open positions on these stocks at any given time. This list is not a recommendation to buy or sell any stock. Do your due diligence. Full earnings claim disclosure here.]
We just witnessed one of the biggest middle-finger salutes to the old saying “Sell in May and go away” in history.
The markets were not only up in June…
The NASDAQ composite recorded its best June in nearly two decades.
The Dow Jones Industrial Average recorded its best June in 81 years.
The S&P 500 posted the best June since 1955. That’s 64 years.
Just as the beginning of May was the start of a month-long slide, June signaled a clear reversal.
For example, except for June 3, the market shot up every day the first week of the month. The second week we saw healthy consolidation, and the third week, another pop. The month ended with a red week. But overall the markets held gains for the month — and the year.
Here’s a 1-year chart of the SPDR S&P 500 Trust ETF (NYSE: SPY):
SPY (S&P 500): 1-year chart
U.S. Markets Testing All-Time Highs — Again
Last month I mentioned the S&P looked like a possible double top. Now the markets are once again testing all-time highs.
I also said we’re only one China trade-deal away from a possible breakout. Things haven’t changed too much in that respect. We did get news out of the G20 summit in Japan that the U.S. and China will restart trade negotiations. That’s positive. Now we wait and see.
Penny Stock Trading in the Current Market
As always, I adapt my trading to what’s actually happening rather than a prediction. I also adjust based on my personal schedule. I don’t force trades. June was no different.
I only took 15 trades during the month because I didn’t see many of my favorite setups. And … my personal schedule didn’t fit very well. I spent a good part of the month in time zones that make trading the U.S. markets tough — like Japan and Hawaii.
That might seem counter intuitive since the market was up. Welcome to trading. There’s a lot about it that’s counterintuitive.
Now, before I give you my top penny stocks to watch in July 2019, let’s recap the picks from June. This will give you an idea of how fast things can change with penny stocks.
Recap: June 2019 Top Penny Stocks to Watch
Soliton, Inc. (NASDAQ: SOLY) went supernova on May 28 and 29. Newbie shorts got squeezed as it ran from $5.82 all the way to $29. In June it was choppy. It found support around $14, but on July 1 it cracked below support.
Obalon Therapeutics, Inc. (NASDAQ: OBLN) spiked in May based on the release of expanded clinical data and rumors of a buyout bid by Johnson & Johnson (NYSE: JNJ). The stock pretty much tanked for the entire month. From its June 3 high of $1.58, OBLN dropped roughly 54% and is trading in the 70-cent range.
Eltek Ltd. (NASDAQ: ELTK) was a possible dip buy for me in June based on its drop of nearly 50% off of May highs. ELTK spent most of June downtrending. It had one notable morning spike on June 10 but still closed down for the day. The stock seems to be holding historical support in the high $3s to low $4s.
Legacy Reserves, Inc. (NASDAQ: LGCY) was the darling of the market on June 3. It spiked roughly 540% on news the company reached forbearance agreements with its lenders. On June 18, Legacy filed for Chapter 11 bankruptcy with outstanding debts of roughly $1.68 billion.
Castor Maritime Inc. (NASDAQ: CTRM) spiked on earnings news. CTRM has a history of failed one-day spikes. This time was no different. After its initial pre-market spike on June 4, it tanked. By the end of trading on June 5, CTRM was back to pre-spike levels and is trading in the low $4 range.
Trading Lessons From the June 2019 Recap
Remember, most of these companies are terrible. Most will go bankrupt. That’s why I trade the ticker rather than invest in the company. LGCY bagholders from June 3 got stuffed. Bagholders on any of these stocks got stuffed, but the LGCY bagholders got the worst of it.
Take the time to study the charts of these stocks. See how they performed. Study history to learn patterns.
Timothy Sykes’ Top Penny Stocks July 2019
Again, the stocks on the list made it because of the lessons they provide. They might not be in play by the time you read this. That’s the beauty of penny stocks.
How I Pick Stocks for My Watchlist
Every day I look for the top percent gainers. Whether it’s at night or pre-market depends on my schedule/time zone. Then I sort them in order based on volume traded. After that, I look at long-term charts, company profiles, etc. I always look for the news catalyst. Sometimes there isn’t a good catalyst, which makes me more cautious.
With a monthly watchlist, it’s not much different since I don’t stay in trades long-term. I did choose three gradually uptrending stocks with multi-month runups for this list. Even though they move slowly, they could break out any day with the right news and volume. We’ll start with those.
Digital Turbine has a nice looking long-term chart. It’s been uptrending since November 2018. The company provides software to the mobile industry. Clients include original equipment manufacturers (OEM), advertisers, and app developers. The chart shows the stock has the ability to hold gains and is trading near multi-year highs.
Check out the 1-year chart:
APPS 1-year chart
APPS was an earnings winner at the start of June and has continued its uptrend. Trading volume is low compared to the float but has increased since February. Remember to look at ALL the indicators explained in my Trader Checklist Part Deux guide. Volume can affect the ease of your entry and exit.
Corindus Vascular Robotics designs and manufactures robotic-assisted systems for interventional vascular procedures. They boast the only FDA-cleared robotic system for those procedures. Plus, years of clinical evidence.
Corindus joined the Russell 3000 Index on July 1, following the annual Russel reconstitution.
Here’s the chart:
CVRS 1-year chart
Corindus spiked on May 8 even after they missed earnings projections by a penny per share. Why the spike on missed earnings?
Corindus Vascular Robotics announced increased year-on-year revenue.
The company announced purchase orders for 11 of their super-cool robotic systems (called CorPath GRX).
And Corindus announced they have cash to burn.
A biotech with revenue growth, orders for products, and cash in the coffers. Notice how the resistance near $2.50 in March became the support in June. That’s another concept you’ll come to understand better as a Trading Challenge student.
Avid Bioservices provides development and manufacturing services to other biotech and pharmaceutical companies.
CDMO is a recent earnings winner. An analyst from Janney Montgomery Scott upgraded it to a buy with a $10 price target. On that news, in pre-market trading on June 28, shares were up as much as 20% from the previous day’s close.
CDMO 10-day chart, 5-minute candlesticks, extra-hours trading included
CDMO has some positives and some negatives. It’s an earnings-winner play reaching multi-day, multi-week, and multi-month highs. It’s a former runner. But, it’s choppy, and trading volume in relation to its float is low.
The right news catalyst and a boost in volume could see this one run more. This is a potential dip buy only for me.
FuelCell Energy designs, manufactures, and installs fuel-cell power plants. They also have solutions for energy storage and recovery.
The 1-year chart below shows only one multi-day run back in February. The long-term trend is all down. Notice the huge gap up after FuelCell announced a 12–1 reverse stock split, which took effect on May 9.
FCEL 1-year chart, 1-day candlestick
After the reverse stock split, the chart is ugly. So why add it to this watchlist? A few reasons:
Volume on July 1 was heavy but nothing compared to July 2.
It’s the biggest percent gainer in the entire market as I write (July 2).
Check out the 2-day chart:
FCEL 2-day chart, 1-minute candlestick
After the run on July 1, I added this to the daily watchlist I share with Trading Challenge students. Look at the MASSIVE volume on July 2. As I write during power hour, the volume is 133.08 million shares on a float of 20.75 million. In other words, the float has rotated more than six times in one day. Huge. (Power hour is the last hour of trading before the market close.)
Also, the stock is hitting a new high of the day. We’ll see what this one can do. As I said, the long-term chart is bad. It’s very choppy. I won’t chase it, so it’s a potential dip-buy only for me. Ideally on a big morning panic. A few Trading Challenge students reported doing well trading FCEL on July 2. [Update: I tried to buy into the morning panic on July 3 but couldn’t get my order executed. It was moving too fast. Scary stock Whew!]
Fantastically Ridiculous Luxury in Switzerland and France
I just spent a few days at the beautiful Bürgenstock Resort overlooking Lake Lucerne in Switzerland. Definitely check out the website. The crazy pool with a view is amazing. Also, the food in the various restaurants is excellent. Add this one to your bucket list if you love to travel.
Now I’m in France staying in a 16th-century manor house. The place is pretty incredible because the house is built right in the middle of a closed park. There’s a lake, the gardens are beautiful, and the decor is stunning. It’s pretty big, too, with something like 10 or 11 bedrooms.
Charity Is My Passion Project
I’ve had some meetings with a bunch of new charities. Nothing formalized yet. So far, we’re in the talking stages but these things take time.
The “Save the Reef” documentary now has 2.75 million views. We’re trying hard to get it over 3 million because the more views it gets, the more awareness the crisis gets. Also, it helps Karmagawa gain credibility. So if you haven’t watched it yet, please watch it now and then share it on your social media.
50 Minutes to Save the World - YouTube
Penny Stock Trading Lessons
My lesson for this edition is from the 4th of July holiday week. The markets closed early on Wednesday, July 3 and were closed on July 4.
Reebonz is like an online consignment shop for designer and luxury items. Users sell luxury items they no longer want. Or if you’re a buyer, you can score killer deals on used luxury items like watches and handbags.
On July 2, RBZ spiked pre-market on news it was expanding its recently launched “Sell to Reebonz” service to five new markets: Australia, Hong Kong, Indonesia, Malaysia, and Taiwan.
Another thing to consider is the recent hot IPO of The RealReal. (NASDAQ: REAL) The RealReal is a U.S. based luxury consignment operation. REAL began trading on June 27, so RBZ was also a sympathy play.
I made two trades on RBZ on July 2 — one winning trade and one losing trade. It’s a former runner, it was a little choppy that day, and remember it was a holiday week.
Take a look at the chart and then I’ll give details below:
RBZ July 2: speculative buy and attempted breakout over pre-market highs
The first trade was the speculative pre-market trade. My entry was near $4.30 and I was out at $4.50. Because it was pre-market, I didn’t get greedy and was happy to lock in safe profits. I alerted Trading Challenge students it was a potential re-buy when the market opened. More important, I told them to be safe as stocks can move faster during holiday weeks.
I mentioned in the chat room that RBZ was looking weak at the open and I wouldn’t chase unless it broke the $4.50s. Then, one minute later it started to spike but it was too fast for me and I missed. I managed to get back in for the breakout over pre-market highs as I thought it could keep going. However, I took a smaller position because it was moving so quickly.
As it turns out, there was no follow-up spike so I didn’t want to risk it. Rather than hold and hope, I cut losses quickly to protect overall profits.
On the first trade, I was aiming for 10%–20% and only got 4.9%. However, that translates to a $525 profit*. The second trade my plan was to sell into the low $5s — which would have been roughly 10%. Instead it was a loss of $94* or 1.09%.
I hope you take notice of two things with this trade. Above all, I protected profits. I didn’t let ego get in the way when the second trade went against me. Also, the gain percent on my first trade outweighed the loss percent on the second trade.
So, the big lesson from these two trades is to trade safer and prepare for quicker moves on holidays. Also, sometimes you have to be in pre-market to beat the crowd.
I try to answer every question I receive from students. The best way to get your questions answered quickly is to join the Trading Challenge. Then you can ask questions on live Q&A webinars and everyone watching gets the benefit in real time.
That said, here we go…
“When there’s a hot sector, should we focus on sector leaders even if they’re high priced? Is this a good way to identify potential sympathy plays?”
Um, yeah, I’ll use Beyond Meat (NASDAQ: BYND) as an example. BYND is the leader of the vegan space. So if that’s spiking, other potential vegan plays might be spiking. But it’s not an exact correlation.
It’s good to be aware of the market leaders and sector leaders just to see what’s hot and how you can play around that.
It doesn’t necessarily have to be a sympathy play in the same sector. It could be one of the company’s suppliers. There are a whole bunch of ways to look at any stock that’s running. If you do that, you start thinking outside the box.
For example, if Tesla (NASDAQ: TSLA) starts to run, you don’t necessarily have to just look at all the car companies. You could look at companies that make car components. Certainly you could look at companies that make batteries for electric vehicles. You could look at companies that make all the components involved in electric cars.
“When reviewing a trade after the fact, there’s a lot to consider. I’ve heard you say it’s better to be on the right track and miss than on the wrong track even if you had a profit. Would you please expand on this idea?”
Sure. Again, no single trade matters. You want the trades to do well if you do the exact same trade 10 times … 50 times … or 100 times. If you do that same trade 10 times and you only lose 20% or 30% of the time — that’s a good trade.
In contrast, if you lose once or twice on a pattern you don’t have enough data. Your data set is not big enough.
I’ve heard people say, “Oh, I lost two trades in a row with this trade. It didn’t work out. I was wrong.”
The question is, how would you have done if you did this trade over and over again?
You should be constantly backtesting different strategies. Similarly, you should be backtesting different patterns.
And, it’s not just backtesting. You also need to be present testing. Use your current trades. See how you would have done had you held longer.
I’ll use my RBZ trade as an example. I was glad to buy it pre-market and sell into strength. But then I kept watching it to see if it would keep spiking. I sold right near the pre-market top in the $4.50s. But near the market open it went to the $4.70s, so I was really on the right track.
Let’s take a look at the chart again, with a couple of trend lines and a support line added so it’s perfectly clear:
RBZ: Being on the right track is more important than just winning a trade.
First, understand the right side of the yellow trend lines is an example of shoulda, coulda, and woulda. It’s the top of the move — the high. I mean, it’s next to impossible to nail the exact top and bottom in any trade.
(Note: many technical traders use the tops and bottoms of the candle body to draw trend lines. I chose the top of the candle wick, or shadow, to exaggerate the point.)
Don’t expect to nail the exact top and bottom. I didn’t and you won’t, either. If you do, it’s luck.
But being on the right track is not necessarily luck.
It really doesn’t matter that I made 20 cents a share on this trade. What matters is, I was dead-on right that it could spike more at the open. So, this was a good trade in a sense that I took profits on it, but an even better trade in the sense that it spiked more.
That’s how you have to look at it. It’s not just about what you did on the trade, but what you would have done had you held longer. Some people have profits but had they held longer they’d lose every single time. So they got lucky taking profits.
You have to think “How can this work again and again and again?” Always remember it’s not an exact science. It’s a process.
Millionaire Mentor Update European Edition Market Wrap
That’s a wrap on another edition of the Millionaire Mentor update.
Please watch and share the “Save the Reef” documentary. Again, the more views it gets, the more exposure the reef crisis gets. Please do your part.
As for trading, here’s a recap of the main lessons:
During holiday weeks things can move fast, so be prepared.
Likewise, because things can move fast, you have to play safe. So, be willing to take smaller position sizes.
Always cut losses quickly.
Pay attention to sector leaders but also start thinking outside the box. Are there related companies — like suppliers — that are potential plays?
Backtest and present test your trades and trade ideas. Develop the skills to be on the right track more often than not.
Are you a trader? What’s your process for tracking sector leaders and sympathy plays? Comment below and share your story. New to trading? What are you doing to develop your skills on a daily basis? Comment below, I love to hear from all my readers!
When you think about the Independence Day, what comes to mind? Probably things like barbecues, beer, and fireworks … and probably not things like studying, trading plans, and chart patterns.
Hey, it’s only natural: after all, Independence Day is kind of a catch-all summer holiday dedicated to carefree time off from work. And everyone needs a little time off.
But today I want to remind you that it’s also a day to be thankful for the freedom that you have — both as an individual and as a trader.
Independence Day: The Price of Freedom
… on July 4, 1776, the original 13 colonies declared independence from the British monarchy and the United States was born.
Without that meeting of the minds and declaration, things might be very different today…
We might not be the United States of America.
We might not have the incredible freedom we enjoy as U.S. citizens.
We might not have the stock market at all!
In my life and as a trader, freedom is one of the things I value most. It may seem ironic that I spend a lot of my time outside of the U.S., pursuing adventure. I aim to make the world better through my efforts with Karmagawa and want to help raise up others who are less fortunate through my charity work.
And the ability to travel like this gives me great perspective on the freedom that I’m afforded as a U.S. citizen.
Had I been born somewhere else, I might not have had the freedom to begin trading with my $12,415 of bar mitzvah money, which I turned into millions. I did it against all odds and much to the surprise of my parents (they thought I’d blow it all and learn a big, fat lesson).
As a trader, I’ve been able to pave my own path to financial freedom and find the freedom to live the lifestyle I want. And I want that for you too.
Listen, it’s not all about money. Money doesn’t buy happiness. But money can be incredibly helpful in moving you toward your goals and the things that can help you find happiness.
For me, trading has been the gateway to financial freedom. Many of my students have the desire to attain this type of freedom, and I’m proud to say that some report that they’ve reached their goals.
Here’s the catch: It takes work. A LOT of hard work.
There are plenty of would-be students who give up because they think it’s “too hard” to study and learn the stock market. They want to jump in and trade. And usually, with that approach, they end up with less financial freedom than when they started, because they blow up their accounts and lose money.
Of course … that’s part of freedom too. You’re free to blow up your account if that’s what you want.
But is that really what you want?
If you’re able to take a longer look at what you want to attain in life, then you’ll probably see the value in learning all you can about the market so that you can become self-sufficient and begin to find consistency as a trader.
Jack wanted to become a trader badly, to the point where trading took up his days and even dreams. He studied all day every day for over a year. Now, he reports that he’s on his way to becoming a successful trader.**
That might not be the road you want to travel, and that’s totally OK. There are plenty of things that you can apply yourself to and get ahead. But if you think this is the path you want to take, now’s the time to dedicate yourself to becoming the best trader you can possibly be.
With the Independence Day looming, you probably have a few days off from work … so how will you use this freedom?
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 HUGETHANK 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.
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.
Lessons from Recent Trades: Modulate Based on the Current Market : Summer Trading Spike
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.
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.)
Technical Analysis Basics: Support and Resistance Levels - YouTube
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.
VUZI chart: resistance becomes support
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:
VUZI chart: June 25 morning dip buy — nice little pop off resistance
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:
SPY chart: SPDR S&P 500 1-year
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!
I love getting messages from my students. I love communicating with my students and followers on social media. I get inspired by messages of success in the Trading Challenge chat room. And I love to share inspiring messages and student milestone reports .
So, if you want to celebrate a milestone, embrace the process. You have to gain knowledge and experience before you get to celebrate big numbers. When you join the Trading Challenge you start the process.
It’s all about the process. Start today.
Back to messages from students. This is how, frankly, I choose many of the topics I cover — both on YouTube and here on the blog. And it makes me a better teacher. Yeah, I could ignore everyone and say, “this is what you need to learn” but then I wouldn’t grow as a teacher.
Trading Tweets With Tim?
I want to start a whole series called Tweets With Tim where I showcase everything I’m getting on Twitter. Good tweets, bad tweets, everything. I don’t think there’s anyone in the world interacting with as many traders on a daily basis as me.
So, Tweets With Tim might be coming but there are some hurdles to jump first. Primarily to do with privacy and legal issues. What can I say? It’s the world we live in. But I have my fingers crossed.
In the meantime…
Trading Challenge Student Milestone
Some students have recently crossed big milestones. I try to give them a shout out whenever possible. Sometimes it’s here, sometimes on YouTube.
Here’s the thing…
Sometimes the numbers are pretty big. Big enough so a student starting out with a few thousand dollars in their trading account can’t relate. They might say “Hey, I want to be a top student of Tim Sykes.” But they’ve never had more than $10,000 in their bank account in their life.
I’m not knocking anyone in those circumstances. I’m just trying to make the point that if you want a big number but can’t relate to it then it creates a mental barrier. And it’s not even conscious. Your unconscious mind simply can’t relate. For some people, you have to find examples of success closer to where you are.
Check this out and get inspired…
Embrace the Process When Learning to Trade
This is why I work so hard to get people to embrace the process and not worry so much about the money. If you embrace the process and learn the rules, the potential for money increases.
What Happened When This Trading Challenge Student Embraced the Process?
So I want to celebrate an amazing milestone one of my students reached in March. He’s called GarseeTrader over on Profitly. He reports that he grew his small account by roughly 400%*. And it wasn’t a fast process. It took nearly two years for him to quadruple his account. But this is where it gets fun because he’s created a foundation of knowledge.
Amazing job, GarseeTrader! He reports that he’s accomplished even more since that time. You can check out his profile over on Profitly. There’s a profit chart there as well as his most recent trades.
(This recent post explains how to learn from trades posted on Profitly: My Top No-Cost Resources For New Traders. Even if aren’t a subscriber yet. If you’re new and trying to figure out where to start, read that post and follow instructions.)
For those of you who don’t know … and you think trading is just about the money — it’s not. Money is a result of how hard you work. Money is a byproduct of studying. When it comes to trading, studying can become your closest ally.
GarseeTrader didn’t put all the money he had in the world on one stock and it quadrupled. No. He’s been taking little gains here or there. He’s been developing his skills. He’s been testing and tweaking. He’s come to terms with his comfort level. He’s set some realistic goals about how much he’d like to make on a given day without overtrading.
My point is, there’s a process you have to go through to become consistently profitable as a trader. It takes time and effort. It takes study, practice, and dedication. It requires you to learn to lose the right way. (Every trader loses some percentage of the time. Just keepin’ it real.)
Sometimes You Have To Lose To Win
I don’t win 100% of the time. None of my top students win 100% of the time. Not even 90%, or 80%. Sometimes we win 50%, 60%, or 70% of the time. It all varies. This is what’s so cool. Pretty much the whole world thinks that penny stocks are scams — like there’s no money to be made.
Little by little, I’m putting cracks in those ignorant assumptions.
With every new milestone student, I’m reminded it’s not about the number.
Some of my students start with $1,000 or $2,000. I don’t think you realize how many trades, and how much effort and hard work it takes to get from a thousand to a million. But it’s not impossible. (Potentially, if you work hard and study. My results aren’t typical. I’m not a financial professional.)
That’s what I love showing. The process. Every single trade. You can look up GarseeTrader on Profitly and see every single trade. Do not trust anybody who doesn’t show every single trade and the details of how much they’re using on a trade. Demand transparency.
Why is it so important to get the details? I see some traders posting things like “I made $50,000!” and they show one screenshot. But if you’re using $600,000 or $800,000 to make $50,000 … or you risked losing $100,000 at one point and the trade came back…
…maybe you got lucky this time.
That’s not what I teach and I don’t recommend it. It’s a great way to blow up your account.
Rely On the Process
You can’t rely only on overall profits. GarseeTrader earned his milestone with small gain after small gain — and smaller losses. Still, it’s an example of quadrupling an account in a timeframe that can’t be matched using mainstream strategies like mutual funds. It can’t be matched investing in long-term blue-chip companies, I’m sorry.
To quadruple your account that way it’s going to take a decade, maybe even two. This is happening in a few weeks or a few months. Or a couple of years. And I’m not saying this is easy, fast cash. This is not a get rich quick scheme, okay?
Go over to Profitly and look at GarseeTrader’s progress on profit.ly. Do it. The first leg up took a long time. But when things started to click, they clicked. Now it’s up to GarseeTrader to maintain his focus. It’s up to him to stick to his trading plans and continue to be as careful with risk as he has to this point.
But because he’s followed a process to get to this point, he has a process to use for the next part of his journey. He has more funds to work with because he’s earned them. So things start to change. He can take bigger position sizes as determined by his risk management system (RMS).
The lesson from GarseeTrader: In the beginning, don’t worry about the money. If you study a lot and the money isn’t that big in the beginning, you’re learning the process. Once you learn the process, it’s rinse and repeat, rinse and repeat.
The Ongoing Education of a Trader
GarseeTrader studied like crazy for years to get the knowledge to be able to do this. He started with me back in January 2015. He didn’t even make his first trade until July 2017! Talk about patience. At first, he didn’t even trade — he studied.
When he did start trading he didn’t make much at first. He reported losing on 5 of his first 6 trades. But he learned the process. And he continues to refine his process.
This is super important. He hasn’t learned “just enough to be dangerous to himself and others.” He’s learned a process which he continues to refine. It takes time. FOR EXAMPLE: The exact same process used to go from $2,500 to $10,000 is the same process that’s could possibly be used to go from $10,000 to $40,000.
It’s not going to be overnight. It’s not going to be easy. You have to wait for the right plays. And this isn’t an exact science.
What are the right plays?
Trading Tip: Find the Hot Sector
Sometimes there might not be a hot sector. Or it might Bitcoin … or the weed sector. But you learn what the good plays are — like Garsee Trader. Then you learn to have patience for those good plays. You learn to grow your account exponentially over time. That’s what’s possible with enough patience.
Embrace the Process With Trading Challenge
I love showing you example after example of successful students. No matter whether they report becoming a millionaire or a six-figure student. Or quadrupling their small account. They’re all proof to me that the process works.
The Trading Challenge is the best way (in my opinion) to learn the process. It’s not easy. It’s not for lazy people. You get access to thousands of video lessons. You can watch hundreds of archived webinars. Each week, Trading Challenge mentors and I host live webinars. You get access to all my DVDs.
To get through the content we provide requires a massive effort. It requires dedication. In other words, you can’t cheat success.
But the knowledge gained … the potential freedom … that lasts a lifetime. A lifetime.
Thank you for reading my posts. I hope they help you. I want to share everything that I’ve learned over the years. You can check related posts by clicking the links in this post.
To the right you can sign-up for my weekly watchlist, check out the latest posts, and apply to work with me. Subscribe so you can get that knowledge and become my next top student.
Are you a trader? How does your process or lack of process affect your trading? Newbies, comment below with “I will embrace the process.” I love to hear from all my readers. Comment below so I can have more to share on my student milestone report !
Which means they can be potentially be predictable. (My lawyers will hate that last sentence. But it’s true.)
Now, let’s satisfy the lawyers…
Just because you know and recognize a pattern doesn’t mean you’ll be successful with it. There’s a LOT more to trading than patterns. Pattern/price is one of seven key indicators I use to determine if a trade is worth the risk.
Here’s the deal…
There are a TON of patterns. And there are variations on patterns. There are arguments about patterns, disagreements about acceptable time frames for patterns… ugh.
There are only about a dozen patterns I consider relevant. I only trade a few select patterns. At any given time I focus on one or two. I rarely stray from my pattern du jour until it stops working. Then I adapt.
Humans like patterns. We’re drawn to them. From buildings to fine art. From speech to music. We seek patterns.
Check this out…
Because humans crave the regularity of patterns and…
… because they’re so appealing to our psyche…
… we search for confirmation. We like to be right.
Which means price action that looks like it could be a stock chart pattern…
… has the potential to turn into a self-fulfilling prophecy.
That’s probably the most important idea in this entire post. Along with the idea that pattern/price is only ONE of SEVEN key indicators I use to determine if a trade is worth the risk.
Why Is Pattern Recognition Important for Trading?
Traders like patterns. Many technical traders watch and wait for the right price action. They want to see the chart confirm their thesis before they enter a trade.
Again, they recognize how patterns look on the chart and trade according to how the pattern should play out.
When enough traders have the same thesis and make the same move in a short period of time, the pattern plays out. Somewhat predictably. It’s one of the great cat and mouse — or bull and bear — games of all time.
Let me reiterate — every trade is different. This is not an exact science. Sometimes the pattern doesn’t work. You WILL take losses as a trader — it’s part of the game. My goal is for you to learn to take losses the right way.
What if the pattern doesn’t play out? If you trade conservatively like me, you get out fast. Rule #1: cut losses quickly.
Which Patterns Should You Look For?
As a member of the Trading Challenge: You need to know what patterns I trade and what patterns I don’t. Focus on the patterns I and my top students teach. I’ve been trading for two decades and teaching for one.
If you study consistently using the resources my team and I put together, it’s possible to learn the patterns I teach in a few years. (The exact amount of time depends on how much you study and how fast you learn.)
Big picture: Learn as much as possible about every stock chart pattern.
It takes time and effort. YEARS. Don’t be fooled into thinking you’ll understand the details and nuances of every pattern in a short time. It’s not gonna happen because it’s not an exact science.
Why learn about patterns you don’t trade? Because someone out there is trading it. A powerful recent example is newbie short-sellers. They’re trying to short anything that spikes which has led to a lot of short-squeezes.
So even if you don’t short because you’re a newbie or small account holder, there’s opportunity. You can ride the long side of a short squeeze. To be perfectly clear and transparent: I don’t like trading short squeezes. They’re too choppy, and you don’t know how long they’ll last. But several students report doing well recently.
The following is a list of patterns worth knowing. It’s not comprehensive. First I’ll give examples of some common chart patterns. Then I’ll give examples of a few of my favorite patterns. Keep reading as I’ll explain which patterns I’ve been seeing recently.
Stock Chart Patterns Worth Knowing
These stock chart patterns are only a few of the many you should eventually be able to identify. Again, I don’t trade every pattern. Nor should you. Understand the human brain looks for patterns. Learning to recognize stock chart patterns can give you an idea of possible outcomes. It can help you understand possible future price action.
Candlestick charts use Japanese candlesticks to represent price movement. Steve Nison introduced them to the west in his classic book “Japanese Candlestick Charting Techniques.” Most traders I know use candlestick charts for analysis and trading.
Keep in mind that candlestick charting techniques are a study in and of themselves. If you want the ins and outs, read Nison’s book. Then study historical charts in different time frames and backtest what you learn. And just like all patterns: adapt to the current market.
Bull Flag Pattern
The bull flag pattern is a continuation pattern. The price action looks like a flagpole, a flag, and a breakout.
What to look for: a strong upward trend followed by a consolidation period. During the consolidation, the stock trades within a narrow range, forming the flag. Then there’s a strong breakout over the consolidation range.
The body of the flag is a battle between the bulls and the bears. Kraig Biocraft Labs (OTCQB: KBLB) is a recent runner off its highs. It spiked again on June 17, providing a great example of an intraday bull flag pattern.
Check out the chart:
KBLB chart: 5-minute candlestick, bull flag pattern
Notice the midday spike (flagpole) followed by a period of consolidation (flag). Then the stock broke out and continued up.
Inverse Head and Shoulders
The inverse head and shoulders pattern looks the same as the head and shoulders, except it’s upside down. Both head and shoulders patterns are reversal patterns.
What to look for: In an inverse head and shoulders, the price is trending down prior to the left shoulder. The shoulders have higher lows than the head. Coming out of the right shoulder, the trend has reversed from downward to upward.
Take a look at the Social Reality, Inc. (NASDAQ: SRAX) chart below:
SRAX chart: 1-year, daily candle, inverse head and shoulders
Notice the volume spike as the price breaks through the resistance coming out of the right shoulder. This isn’t a perfect inverse head and shoulders. But most patterns aren’t perfect. That’s why I’m including real stock charts instead of graphic representations.
Cup and Handle Chart Patterns
The cup and handle is a breakout pattern.
What to look for: A cup and handle looks like a cup with a downward sloping handle. The handle is a brief pullback coming off the cup’s left rim. The cup and handle pattern is most commonly considered a multi-day/multi-week pattern. But as with all patterns, they can, and do, happen intraday.
Check out the REEMF chart below:
REEMF 1-year chart: cup and handle into supernova
Rare Element Resources (OTCQB: REEMF) is a clear example. The stock was a multi-day runner near the end of March. Then it dropped after the company did a financing. It consolidated in a nice cup shape, getting back near the April high on May 20.
Then it pulled back and consolidated, forming the handle part of the pattern. On May 28, news suggested China was considering withholding rare-earth metals from the U.S. due to the trade war. REEMF went full supernova on May 29 — spiking 124% in one day.
A pennant is a variation of the flag pattern.
What to look for: In the pennant, the price action narrows. Lower highs and higher lows converge until the bulls and bears are at a standoff. Some analysts require a specific number of up and down moves before they consider it a true pennant. Whatever.
The point is, when a stock spikes and then bases or consolidates, it’s proving it can hold the new level. The exact shape doesn’t matter too much.
Regardless of the shape, if the stock holds, it can lead to another breakout. That’s what bull flags and pennants are meant to do. But keep in mind, sometimes there’s a fake-out instead of a breakout. Other times the stock tanks after consolidation.
That’s why pattern/price is one of seven indicators. It’s only 20% of my reason for a trade. Use the Sykes Sliding Scale to help you determine if a stock has more going for it than just a pattern.
Check out the Nightfood Holdings, Inc. (OTC: NGTF) chart below. As you can see, more than one pattern discussed in this post is on the chart:
NGTF chart: 1-year, 1-day candlesticks — cup and handle AND bull pennant patterns
From the end of November 2018 to the beginning of February 2019, the candles formed a cup and handle. It’s not perfect but you get the idea.
Then the stock spiked 154% in two days on news that its ice cream scored a ‘product of the year’ award. For the next 19 days, it consolidated in a pennant formation. The breakout on March 12 had another 35% of upside. There was also a beautiful first green day gap up at the market open on March 13.
Here’s another pennant example:
Zalemark Holdings Co Inc. (OTCPK: ZMRK) recently spiked based on a letter of intent to acquire AeroPonLeaf Canada.
Check out the chart:
ZMRK: intraday pennant — 5-day chart with 5-minute candlesticks
The above chart is a 5-day chart with 5-minute candlesticks. I’ve drawn in yellow lines to show the pennant shape.
Now take a look at ZMRK again — this time the chart is a 15-day chart with 1-hour candlesticks:
Again, the yellow lines indicate a triangle/pennant shape on the chart. My reason for including this chart is to impress upon you how important it is to look at different time frames.
And I hope you research this stock to see what happened next. Did the triangle formation consolidate into a continuation? Or was it a fake-out?
Some of My Favorite Patterns
So far I’ve shown you a few of the patterns you should learn. Not necessarily to trade, but to understand what’s happening when you see them. Preparation is key. If you focus on preparation by learning as much about patterns as possible, you’ll potentially be a better trader.
The following patterns are strong recent examples of patterns I’ve been trading for two decades. And they’re still relevant.
I have a few haters who claim I teach 20-year-old patterns. Well, they’re right. Because the patterns keep happening. Why would I stop teaching them and trading them if they still happen?
Again, how well a pattern works can change over time. Sometimes a pattern works and sometimes it doesn’t. That’s why you have to adapt.
The Stair Stepper
UP Fintech Holding Limited (NASDAQ: TIGR) has been on and off my daily watchlist for the last month or so. On June 17, it played out as a beautiful stair-stepper pattern from the moment the market opened until it closed.
The pattern day trader rule (PDT Rule) is among the most misunderstood stock market terms. Specifically, I get many questions about the rule that says you must maintain a brokerage account balance of at least $25,000.
A HUGE thank you to the staff at each of these hotels. Oh, and for you reading this, if you get the chance to visit any of these hotels I recommend them.
Wait, have you seen the documentary yet?
If not, here it is. Please watch, comment, and share. Let’s get this over 2 million views as fast as possible. Let’s get it to 10 million. Then 20 million. The more people we get to watch this documentary, the faster we can save the reefs. It’s such an important issue.
50 Minutes to Save the World - YouTube
If you’ve already watched it, thank you. Please continue to spread the word. We’re talking about the very air we breathe.
One final thing about the documentary experience and I’ll get to trading…
If you read last week’s update you know I threw my back out three days before the premiere. There was editing left to be done. I could barely walk and at the premiere, I was hopped up on painkillers. It was brutal.
So, if you’re on an airplane and you have heavy luggage in the overhead compartment … be careful. Be meticulous. I wasn’t. I was only half awake after flying from Tokyo to Hawaii and I didn’t brace myself. My back got crunched.
Soon I’ll post a video on YouTube. It’s me presenting a webinar for Trading Challenge students and trying to trade with my back out. It’s about when NOT to trade. I’ll give you a hint now: I was slouched over, my back was killing me, and I was on painkillers.
You shouldn’t trade when you’re on painkillers. And you shouldn’t trade when you’re in pain. It messes with you. It messes with your trades. Not to mention, throwing my back out was the worst timing ever.
Trading lesson numero uno for this edition of the update: Don’t trade when you’re in pain and/or on painkillers.
Part of the reason why I and my top students show all our trades on Profitly is to give you an idea of what it takes. We don’t want you to copy us exactly. We want to show you what’s been working for us.
We also want to show you when we lose — and why. We want to be transparent about it. We give you a full and clear picture of the risks and rewards.
(Note: it’s not easy. Trading involves risk. 90% of traders lose money. My goal is to help you lose as little as possible while you learn. It takes time and effort to be successful. It’s not guaranteed.)
This is super important — pay attention. It requires you to adapt to what works best for you. Your personality, strengths, and weaknesses all make a difference. My recent trading may not be exciting, but it’s meticulous. I focus on what I do best.
This trade had some positives and some negatives. One positive was the news. That’s the kind of catalyst I like. Now take a look at the long-term chart:
PRED 1-year chart: nice multi-month upward trend
It’s a perfectly uptrending multi-month chart down off its highs — another positive. My thesis: it should bounce. But the volume was sooo weak. That was the negative. Even after a big partnership announcement the stock barely budged.
This chart shows where I made my trade.
PRED chart: June 19; 1-minute candlesticks; low volume spike
I took small profits. As I often do, I sold a little too soon. I’d hoped to sell in the low $5s but it was meeting resistance. Less than an hour later, it did get there but it couldn’t do much after that. It spiked three times and then faded when people realized it wasn’t going to break the morning highs. Notice the low trading volume — that’s the big negative for this trade.
Overall this is my kind of trade. While it didn’t get a big spike like I wanted, I focused on a pattern I like with a catalyst I like. The lack of liquidity kept it from being a perfect trade for me. I only made a small amount. But, I traded based on my strengths.
As always, understand this is a marathon and not a sprint. Also, we’re in summer so remember summers are typically a little slower.
One of the reasons I travel so much and give time and energy to charity is to keep me from overtrading. I love travel and my charity work. But I also need something other than trading in my life.
You should have something else in your life. If you have a family or some other passion, don’t neglect them. Yes, study every day. Yes, put in the time and effort to develop the knowledge and skills necessary for success.
But don’t make trading the only thing in your life. Otherwise you’re just going to become a degenerate gambler like too many people. You’ll be trying to force trades and you’ll actually do worse.
Trading is counterintuitive. The more you want to trade, the worse you’ll do. You should NOT look forward to trading. Think of yourself as a retired trader. Only come into a trade out of retirement. Come into a trade when it’s so good that you’ll feel guilty missing it.
I know its a counterintuitive way of thinking about it, but it helps.
Studying the past helps. You should know a pattern when you see it. But also know it’s not necessarily exact…
For example, right now morning dip buys aren’t working great. First green days aren’t working great. Shorting isn’t working great — a lot of shorts are getting squeezed.
So you have to recognize that sometimes patterns don’t work perfectly. That’s when you pull back. You trade with smaller position sizes — and sometimes you don’t trade at all.
Learn the patterns and keep studying. Over time, you’ll start to see the nuances and variations. But there’s no shortcut. You have to put in the time … over time. If you keep at it, you’ll gain experience and knowledge. But you can’t cheat success.
The question is: How bad do you want it? Are you willing to dedicate time every day for the next few years to learn what you need to learn? Remember, Tim Grittani — arguably, in my opinion, the BEST penny stock trader in the world — says he wasn’t consistently profitable his first 9 months.* And he’s incredible. So don’t think you’re going to match his time frame. You’re not. He’s exceptional.
All you can do is put in the time necessary to get there. Are you ready?
Do yourself and the oxygen supply of the world a favor: share “50 Minutes to Save the World” right now. Go post it on one of your social media accounts. Do it even if you’ve already shared it. You never know who might see it this time. Every time someone new watches, it gains power.
Get inspired — not only about your future in trading, but also about changing the world.
Are you a trader? How does studying the past influence your trading? Newbie? Comment below with “I will study the past and I will focus on what works best for me.”