Category Archives: Experiments
Today is Good Friday and the markets are closed, so I figured it would be a perfect time to crank out an update on my latest penny stock trades, as well as take some time to reflect on what I need to do from this point forward as it relates to the $500 experiment. Here goes…
I got stopped out of SSN after they decided to take a two-day hiatus to carry out an equity placement. Yup, for the first time in my trading career, I got caught with an open position during a trading halt. Without going into too many of the truly boring details, SSN decided to offer additional shares of stock for the purpose of financing some projects, which typically means that the shares that are currently held by investors will become less valuable. And…that’s pretty much exactly what happened. Trading halted on 4/15 and 4/16, then resumed on Thursday the 17th. SSN took a royal dump at the open, dropping like a lead biscuit all the way to 0.34. I got stopped out at 0.42 not even 5 minutes into the trading day. I remember chatting with a few different traders on Twitter about it, and I said a couple of times that I was going to let price (and price alone) determine whether I stay in or get out. Price definitely kicked me out in short order, and I was so glad that I had set my Trade Trigger before the market opened so that I didn’t get caught in the SSN freefall. Check out the chart from yesterday’s action:
You see that big, long bar all the way to the right? That was yesterday’s price action. SSN plummeted right out the gate, but seemed to find a pretty solid floor at 0.36 after the initial panic was over. Quite a few traders were saying that it was a great time to stock up on more shares because now they are really on the bargain counter. I understand that logic, and I may have actually considered it if it wasn’t for how small my account is. I simply don’t have that kind of wiggle room right now. I gotta play extremely tight to preserve the very little bit of capital I have. Quite honestly, I didn’t play tightly enough to begin with, for a couple of key reasons: Number one, I didn’t wait for any kind of breakout, and just when I thought I had a “sure thing” with SSN, the market action decisively proved me wrong. I was doing fine as far as my position goes (pre-halt); I was only in the red by a couple of dollars, so it wasn’t like I was in danger of being stopped out. But, nobody could have foreseen a trading halt, or any of the shenanigans that were pulled this week. So, this is one of those cases where things happened how they happened, and there’s not a whole lot you can do about it. So, I ended up with a $32.47 loss from this trade.
When I first bought DEJ back on 3/21, I did so because the long-held resistance point of 0.25 had been broken. After it bounced hard off of 0.29 resistance a couple of times, it finally broke through 0.30 on 4/16 on good news, only to be smacked back down before the end of the day. Then, the big buzz was this conference call that was held yesterday (4/17), which I did not attend, but I did hear that the news was basically all positive. In what seems like some strange inverse response to all of this, the price of DEJ was once again hammered, resulting in it closing at the much lower price of 0.246. The actual low of the day yesterday was 0.223, not too far from the recent major support point of 0.221. So now, the chart looks like a hot mess. Check it out:
Quite honestly, I don’t know what to make of DEJ right now. I’m sitting with an open loss of 19.27, which isn’t horrible, but the chart has definitely suffered some technical damage due to yesterday’s foolishness. I’m not at that place where I’m quite ready to bail, but at the same time I’m wondering why I’m still in. My initial thought was that the stock would be off to the races once 0.25 broke, and that the 0.30 barrier would be an easy one to overcome. But alas, 0.31 has proven to be some pretty strong resistance, and there doesn’t seem to be any upward momentum in this stock. So I’m sitting here, not really sure what I’m still holding on to as far as reasons to stay in the stock is concerned. What I see happening from this point is a continued sideways chop, and then maybe later some kind of retest of the 0.31 resistance, but in the meantime I’m losing valuable time just waiting in the wings. This leads me to my next point…
I Got Into This Gig to Trade Momentum & Breakout Stocks
My initial plan when I first decided to do this $500 experiment was that I would focus on breakout stocks, and quite honestly take a scalping approach instead of any type of “buy and hold” situation. I’ve been around long enough to know that hardly any penny stocks are sustainable over the long haul; they’re more suited for quick in-and-out trades based on pops and price spikes that–more often than not–simply don’t last. There are stocks that I have tracked since 2001 that are still the same price they were back then, just every now & then they’ll have a quick run up, only to inevitably sink back down again.
But anyway, that was my initial plan–to take advantage of very short-term momentum, even if it means getting in & out in the same trading day, based on breakouts from reasonably reliable chart patterns. But something has happened over this past month, and I really didn’t realize it was happening until yesterday: I have been unconsciously putting too much weight on the “story” of certain stocks (i.e., DEJ) instead of purely focusing on their price action. In all honesty, I don’t care ONE THING about what the company’s plans are, or anything else like that. Fundamental factors really don’t mean two cents to me (no offense to those who rely on them), as I believe that most stocks are simply manipulated by market makers, insiders and other covert participants.
I realized that I had let my strategy “drift”, and no longer was focused on those explosive moves that can produce profits in short periods of time (e.g., ROX, HTM, BONE, etc.), but rather became content with holding stocks, even at a small loss, that had simply lost their upward momentum.
So the question then becomes: If what I’m expecting the stock to do doesn’t happen, why am I still holding on to it?
Take TGC for example. On March 24th, the stock broke the all-important 0.54 resistance level, which triggered my order and got me in at 0.5599. Well, as history has proven, that breakout fizzled out and the stock began another round of consolidation (which, by the way, looks great at the moment). Although the chart looks very promising, there is absolutely NO guarantee that anything will happen. There’s no guarantee whatsoever that the stock will move up any time soon. It looks to be that way, but if that’s not what the price is actually DOING, then all I’m doing is wasting my time waiting, especially since my entry was at 0.5599, a price that hasn’t been revisited since that initial pop. Right now, I’m sitting with an open loss of $12.98, which would be $22.98 if I were to close my position due to commissions. While I do believe that an upward move in TGC is highly likely at the moment, the reality of the situation is that I’m carrying an open loss, because the stock broke out only to make a quick, sharp downturn immediately following the break. So what does this tell me? In my mind, I’m not playing tight enough. My trading record so far shows it. Here’s a screen shot of how I’ve been doing so far:
In the “% Gain/Loss (Indiv. Trade)” column, the percentage won or lost is based on the amount of initial capital invested, including commissions. In the “% Gain/Loss (Total Acct.)” column, the percentage won or lost is based on the total account size of $500. If I were updating the account balance in real time after each trade, this would look different, but for the sake of getting a general picture of the kinds of gains/losses I’m taking as a percentage of $500, I’m keeping the $500 denominator consistent. If you’ll notice, my average losses are quite big for the account size. This has resulted in a net loss of 59% to the entire account to date.
According to the numbers, I have booked profits on just four of my total twelve closed-out trades. This translates into a 33% success rate, or roughly 3 out of 10. That’s actually not that different from what most professional traders achieve; it’s just that they take much smaller losses in proportion to the gains they make.
I can look at this chart and see some really stupid mistakes staring back at me. For example, I know that I exited FNMA for no good reason, only because I got “spooked”. I didn’t have a clear breakout signal for VGZ, and bought it as more of a “consolation buy” for the loss in FNMA. I waited too long to exit after the breakouts failed in GSS, GV, BAA, and PAL. I didn’t even have a freakin’ breakout signal for TNGN and SSN. So when I look at this chart, I see the cold hard truth. I have a lot of work to do.
Where to Go From Here
Of course, at this point I’m concerned about making up for lost money. One important thing that I have decided to do is to pull out the $115 that I had put in after I had already decided I would trade with just $500. I put in the extra $115 as a way to make myself feel better for having such a low account balance after a couple of stupid trades. But, I want this experiment to be totally legit, no matter how absolutely embarrassing it may be. So, I’m going to stick to my original dollar amount of $500 and not try to pull off a slight “cheat” by keeping that extra loot in there. I have already withdrawn $70.00, and once the funds are cleared from the SSN sale I will withdraw the last $45.00. Once that’s completely done, the account will be left with just $295.00; not very encouraging. But, all I can do from here is learn from the mistakes, make adjustments, and move on.
So here’s my strategy going forward: I am going to get back to my original plan of ONLY FOCUSING ON BREAKOUTS, nothing more and nothing less. I’m going to be focused on stocks that are already showing momentum, already in motion, and have potential for substantial price moves. If the breakout fails, I’m going to be absolutely ruthless when it comes to cutting losses…no more waiting around to see if the stock will gather another head of steam. In other words, if the stock isn’t moving in my direction, and I mean moving CLEARLY and QUICKLY in my direction, I’m gonna have to get out. I don’t have the time (or money) to figure out what the stock is going to do after it straggles around for a while. No more messing around with stocks that have stagnant price action and a lot of “promise”. I need stocks that are actually currently MOVING as we speak. This is the difference between trading what you THINK the market is going to do, versus trading what the market is actually DOING. Huge difference there.
Another thing I’m going to do is not waste time trying to be in more than one stock at one time. For goodness sake, man, I only have $295.00 now to make anything happen, and I can’t mess around with trying to be in three different stocks for only $88.00 apiece or whatever. I’m also going to make sure that I choose stocks whose prices make sense for my low account size. This means stocks that cost no more than probably $2.50 per share. This narrows my options a little, but it’s no big deal; I’m used to trading with very little loot (LOL). If you’ll notice, when I first started out, that’s how I did it, but the more I went along, I tried to have 2 or 3 stocks going on at one time, not really maximizing any one trade.
Opportunities abound right now, but the environment is definitely more treacherous than it has been in recent months. This means that I need to be super-selective about the stocks I trade. So I will devote a lot more time to doing solid research, and not getting caught up in any stocks that are not showing some serious potential.
Okay, this post is ridiculously long, but it’s been somewhat therapeutic for me. So hope you enjoyed it. And, as for Good Friday, remember that Jesus is the reason for this holiday too, just like Christmas. End of spiritual plug. 🙂