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A Time to Trade

The time of day you trade matters.  I just finished looking over my trades for the past month, since I opened my SureTrader account.  They allow me to make as many trades as I want without any PDT restriction.  So naturally I am trading more often.  The results surprised me.  You can learn more about the Pattern Day Trader rule and how to avoid it here. When is the best time to trade?

The Numbers

Since opening the account, I have made more trades for sure.  I have lost about $500 total from various trades but the thing that stuck out to me was the time of day I lost the most money.  Pre-market and even the first 15 minutes can be the most volatile, but this has been the most profitable time for me.  Lunch trades, or midday trades have always ended up with me breaking even or losing money.  I did not have a single profitable trade in the midday hours of trading.

Let’s examine one of these trades that should have been an easy win and definitely had the potential to be profitable, but I ended up losing almost $300 instead.  MJ is an ETF that tracks the emerging weed industry.  The day was 11/6/2018 mid-term elections day!  With several measures on the ballots across the country to legalize marijuana in the medical and recreational fields, I expected the excitement for many of these stocks to be high the day after the ballots were cast.  This assumption was based on previous years’ elections.  Almost all similar measures were approved by voters with wide margins.

The Trade

Of course I needed to manage my risk; since any stock can go in any direction at any time, one must always budget the maximum loss one is willing to take.  Since I was looking for a 6-8% swing with a relatively low risk, I was willing to risk 2-3%.  I found that the last resistance level was at $33.98 and I decided to place my stop just below that price, at $33.95.  At 1:37 PM I placed my order for 300 shares for $34.70 each and the trade executed promptly.  The price held steady between $34.50 – $34.75 until 2:15 when the price began to fade.  The price fell rapidly until it broke down below $34, then quickly dropped below my stop, executing my sell order at $33.83, $0.12 below my stop.

The Time to Trade

Now, I had proper risk management in place and only lost about $270 total, but it also cost me a day trade when I had no intention of selling the same day.  So, I was pleased with my plan to the extent that it didn’t jeopardize a large portion of my trading capital.  But the fact remained, every midday trade I made lost me money, and this “easy” trade proved the point.  There may very well be money to be made midday, but it has not been working for me.

So, from here on out as a general guideline, I will not be trading between 11am and 3pm.  Before and after those times, the market is more active and the directions are better defined.  Long-term breakouts that occur midday are fair game, but swing trades and most day trades will be made between from 9:15 – 11 AM and 3 – 4 PM.  Few exceptions will be made.

Side note, I’m working on a guide to summarize all my rules.  I will make it available for free as soon as it is profitable.

What If…

What if I had used this rule with the same assumptions and plan but waited until after 3pm to buy in? Would I have fared any better?  Yes, without a doubt!  If you look at the chart below, you can see I would have had a much better entry point and used $33.50 as a stop.  It’s also worth noting that all my other assumptions proved true.  The votes on election night allow for more access to marijuana in both the recreational and medical fields.  The price opened at $35 and spiked up over $35.50 within a few minutes of the open.  Now, it didn’t hold it during the day, but I would have been able to exit the trade with a profit of $300+.

The key to looking at what could have happened is learning the pattern and looking for it again in the future.  Don’t sit around and beat yourself up for missing out on profits.  After all, there were literally millions of other trades that you didn’t know about that “could” have made you rich.  You don’t stress about those so you should not stress about these.  It is always worth learning from what could have been, just make sure you are constructive.

Final Thought and Notes

As the year draws to a close, it is becoming more apparent to me that I will not likely have the bankroll to quit my job and pursue a full-time career in day trading by the end of this year.  However I do fully intend to continue this quest.  Once I have the skills, they will never be lost.  Traders today are no better than they were 100 years ago.  It is truly one of the last professions that has not been figured out.  Please join me on this journey to financial independence. Follow this blog by signing up below.

All my trades can be found here: Profit.ly
Profit.ly is the social media for traders.  I encourage you to post all your trades as well.

Thanks for reading and happy trading!  Follow me on twitter for all trades, live!

PDT Designation and How to get Around It

The PDT designation or Pattern Day Trade designation, simply put, is a law intended to discourage over-trading.  The SEC states that you qualify as a Pattern Day Trader if you make 4 or more day trades in 5 business days.  If you meet this designation, you are required to maintain at least $25,000 in your brokerage account.  As a result, brokerages have limited all accounts with less than $25,000 to a maximum of 3 day trades per 5 business days.

Q: Why Have a PDT Designation?

As stated above, it is to discourage over-trading.  New traders have a tendency to have FOMO and will over-trade and end up losing money.  Limiting the number of trades you can make forces you to be more selective and can help save your account from being depleted.  The laws in the US are far more strict than in other nations around the world.  In Canada, they require only a $10,000 account balance for unlimited day trades.  Some nations have no minimum whatsoever; we will come back to that in a bit.

A: For Your Own Good

I will not encourage anyone to work around this rule as it is a safety feature for your own good.  Over-trading is one of the easiest ways to lose money.  That being said, I have established a way to work around it for my own personal trading, with a few rules to limit my personal risk.  Every dime I put into the markets comes from outside my family’s budget and outside my retirement accounts.  It is fine to take risks but don’t risk what you can’t afford to lose.  I have funded my accounts with side hustles and gains from within the markets.

3 Ways to Avoid the PDT Designation

Hold trades overnight sounds simple enough, right?  A day trade is a position you enter and exit within the same business day.  After hours and pre-market trades are counted toward the business day on the calendar day they are made.  If you hold a position overnight, it is not a day trade.

One of my favorite strategies is look for stocks that are likely to “gap-up” overnight.  This strategy requires only a few minutes a day.  I run a scan for stocks around 3:00 pm each day, looking for stocks that have gained at least 5% during the trading day, cost between $1 and $10 per share and are closing near their high of the day.  If there is no expected news such as earnings being declared overnight, I will take a position near the close and plan to sell at opening the next day.  You can many times get a 5-10% gain, and even if it doesn’t work out you can usually at least break even or sell for a small loss.  For me, the reward outweighs the risk.  The most important thing to remember is to cut your losses quickly when a stock moves against you.

Open multiple accounts is another easy way to work around the rules, but can stretch your resources thin if you have a small account, say under $5000.  If you have between $5,000 and $10,000, you can split your cash between 2 accounts at separate brokerages and double your day trades from 3 to 6 per business day.  I have the majority of my trading capital in an E*Trade margin account.  Here is a link to the best brokerage to use based on your needs.

Open an off-shore account with SureTrader!

SureTrader.com is an international brokerage based in the Bahamas and therefore, outside of SEC regulation.  They are not allowed to solicit US based customers. They can’t even pay referral fees to people like me who steer new customers in their direction.  SureTrader does have some advantages such as no PDT rule and 6:1 margin accounts.

There are significant downsides that must be noted.  Sending money to offshore accounts is costly.  I funded my account using a Visa debit card linked to a business checking account with First Citizens Bank.  SureTrader charged a 3.5% processing fee and my bank tacked on another 2% as an international transaction fee.  I was charged $167.10 in processing fees to fund my account with $3,000.  In addition, I had to call my bank to set up a travel notification and extend my daily spending limit.  I have not tried to withdraw money from the account yet but have heard it can be difficult, too.  Follow this blog, I will update everyone when that time comes.

Another downside is very lousy executions.  Historically, when I trade with E*Trade, they will execute my trades in the best manner possible for me, their customer; SureTrader does not.  For example, with E*trade, if I place a Limit Sell Order for $3.50 but the price is currently $3.60, E*Trade will execute the order at $3.60 or very close to it.  SureTrader will execute the trade at $3.60 but only give me $3.50 and keep the other $0.10 for themselves.  You can’t complain to anyone because they fall outside of all US laws and jurisdictions.  They have higher fees than the mainstream US brokerages, too.  Commissions are typically between $5-$7 at most discount US based brokerages, SureTrader’s minimum is $5, maximum of $50, based on $0.01 per share.

Final Notes and Thoughts

The Pattern Day Trade rule is there for your protection.  After dealing with SureTrader, I recommend against them.  If you really want to trade, the best way is to open another account and use the gap-up strategy.  It is vitally important that you protect your account for a massive loss while you are learning.  No one trade will make you rich but one trade can bankrupt you.  You can read about me learning that lesson the hard way here.

I’m not yet totally sure of the tax implications of my new offshore account.  You’ll want to consult with an accountant or tax expert for that.  Just remember to answer all questions honestly, and keep in mind that gains made in the markets are always taxable.  US Citizens are required by federal law to report all income and pay taxes accordingly.

All my trades can be found here: Profit.ly
Profit.ly is the social media for traders.  I encourage you to post all your trades as well.

Thanks for reading and happy trading!  Follow me on twitter for all trades, live!

 

The Dilution of HMNY: What You Need to Know

Dilution is a powerful weapon in the stock market and the dilution of HMNY is wreaking havoc on the share price.  Dilution is legal and you don’t always see it coming.  MoviePass parent HMNY is a prime example of what dilution can do to a company’s stock price.  The other week when HMNY dropped below $0.10 per share the data being provided was there was only 1.7 million shares available, at a price of $0.06, the market cap (or valuation) was around $100,000.  That’s it!  The price of a high end car.

Most penny stocks have valuations of more than $1 million.  The fact that only 1.7 million shares were available was what brought my attention to this stock and what made me think it was a good buy.  Since then the company has released more data including the very useful share count; remember, we thought it was 1.7 million.

On 8/15 HMNY released a report, you can read it here.  They went from 1.7 million shares outstanding to 636.9 million shares!  You can do the math but I’ll save you the time.  That’s a 37,365% increase in shares!  Let that sink in, over 37,000%!

Economics 101

I strongly believe that much of the way we look at economics is fundamentally flawed.  However, that is another discussion for another day.  The basic underlying principles of supply and demand are, from everything we can tell, accurate.  So for this post, we will assume that the laws of supply and demand as you learned them in high school are unchanged.

More buyers than sellers, in other words, more demand than supply will push the price of a good up.
More Sellers than buyers, or more supply than demand will push the price of a good lower.

Let’s consider some real world examples.  When a sports team makes the playoffs, the tickets typically sell out very quickly.  The demand for tickets many times vastly outweighs the supply.  This drives the price of the tickets up.  If you want to see the game and you didn’t get tickets from the box office before they sold out, you will have to purchase from someone else on Craigslist or StubHub and pay more than the original price.  The demand is higher than the supply so the price goes up.  This demand can cause a $300 ticket to sell for over $1,000.

When supply exceeds demand, the price will drop.  Consider a pair of designer jeans, bought new from a department store they might cost $250 or more.  At the end of the season the leftover inventory will go to discount retails like TJ Maxx, Ross or outlet stores.  The surplus supply of jeans is sold at a discount, usually under $100.  This surplus supply will drive the price down.

Supply & Demand and the Stock Market

Stocks are just like everything else that we buy and sell, the same rules of economics apply to them in real time.  More demand will drive prices up, more supply will drive prices down.  Typically, most big companies we hear about don’t buyback or sell more shares.  But this problem plagues many penny stocks.  One of the biggest reasons people don’t trust penny stocks is because the owners of the company can dilute the share holders by supplying too many shares to the market.  This will eventually drive the price down.

Companies sell shares to raise cash to make investments or cover operating expenses.  HMNY is burning cash much faster than they are bringing it in.  With the unstable business model it is unlikely they will be able to get a loan to help them stay afloat.  They have shares of their own stock and they are selling them as fast as they can.  This is how the supply went from 1.7 million to 636.9 million in just a few weeks.  HMNY sold 635.2 million shares to help cover operating expenses.

This selling “diluted” the market and made the existing shares less valuable, just like the designer jeans.  The last few weeks as tens of thousands of traders and investors rushed in to buy up what looked like discount shares, HMNY was selling them as fast as they could, which kept the price from rising and actually pushed the price lower.

The Dilution of HMNY

The management at HMNY diluted the shareholders’ current stake and made everyone’s shares worth less.  However, if they did not sell these shares they could become insolvent which would make their shares worthless, truly worthless, $0.000000.

When I decided to buy some shares it was truly a gamble.  I might lose the entire amount I invested or I might make a handsome profit.  No one knows for sure, anyone that tells you different is lying to you.  This stock is a gamble plain and simple.  With BIG risk can come BIG REWARDS!

 

Thanks for reading and happy trading!  If you have any questions please post them below.  Don’t forget to follow me on Twitter for all trades live!

Facebook: the Biggest Loss EVER! plus BITCOIN: It’s Your Move

In the past 2 weeks, I have become a little more active in my trading, Bitcoin is on the rebound and Facebook recorded the biggest single-day loss in the history of the stock market.  Bitcoin it’s your move. This may be the last chance to get in cheap(ish).  Facebook and FAANG decline, what you should make of it.

Bitcoin’s $6,000 Bounce

Bitcoin, as you can see on the graph to the left, has been a bit of a roller coaster in the past 6 months.  With its all-time high of over $19,000 from December seeming like a distant memory no one was quite sure how far the price would fall.  In June the price dropped just below $6,000 and quickly jumped back up above it.  After getting back over $6,000 it seemed to stall for several weeks, which led to much speculation about the end of Cryptocurrencies.

Nothing could be further from the truth, Bitcoin is not dead and likely has a long future ahead.  Many institutional investors have been flocking in since the beginning of the year.  Some governments around the world are holding large quantities and even Goldman Sachs, the bank with the closest ties to the US government, has invested heavily in setting up their own Bitcoin exchange.  Goldman is one of the few large, well recognized, well-established banks that is welcoming the world of cryptocurrencies.  In my opinion, they see the writing on the wall and don’t want to get left behind.  If you can’t beat them, join them!

At this writing, the price has rebounded above $8,000, essentially bouncing off of the $6,000 support level.  The coming weeks may see a strong continuation, $10,000 will provide a challenge; if it can break through that, the sky is the limit.

Bitcoin It’s Your Move

This is quite possibly the last time that Bitcoin will trade this low.  A year ago today Bitcoin traded at $2,800 and the early investors celebrated with lobster and champagne.  While Bitcoin is a long way from its all-time high above $19,000, it is currently trading at an attractive level for those wanting to get started.

I invest in Bitcoin with Coinbase, follow this link to start your own account.  We will both receive $10 worth of Bitcoin if you purchase at least $100.  While I believe the price of Bitcoin will grow exponentially in the next few years, there are no guarantees.  Invest only what you can afford to lose.

FAANG and the Fall of Facebook

FAANG is an acronym for the big tech stocks that seem to have limitless growth potential.  Facebook (FB), Apple (AAPL), Amazon (AMZN), Nexflix (NFLX), and Google’s parent company Alphabet (GOOG, GOOGL).  These stocks have been exploding, gaining between 50% and 150% each year since the great recession ended in 2010.  The bigger the gains the bigger the falls.

NFLX was trading near its all-time high of $420 per share when it’s earnings report came out, the share price has dropped to $340, a 20% decline in about 1 week.  This was a result of slowing subscriber growth.

FB was trading at $217 per share but when it reported a loss of users, it dropped to $175 in a single day.  This loss equated to more than $100 billion, the largest single-day loss in value of any stock in the history of the stock market.

AMZN reported strong earnings but with the constant attacks coming from President Trump’s Twitter account the stock has declined since the earnings report’s rally.

GOOG, GOOGL, and AAPL all showed strong earnings but have been declining over the past week, too, most likely being brought down by the rest of the FAANG stocks.

Your take away from this earnings season is to understand that all stocks can be dangerous.  Stocks are capable of falling faster than they gain.  The market has no sympathy for anyone who decides to play in its dangerous waters.  If you are an investor you can ignore this headline.  If you are trading, take note and know that no matter the indications, it is dangerous to hold a stock during an earnings report.  Past results have no guarantee of future earnings and growth.

The Trades

Here are the trades I have made over the past 2 weeks.  These moves have brought me $792.61 in total realized gains, not bad for part-time work!  Follow me on Twitter for all my trades live!

7/16 Sold 13 shares of GOOG for $1,180.00 each, total sale $15,334.85.  Profit $509.90, about 3.4%.
I had bought those shares on 6/13.
I sold these before earning because I did not want to take the risk of losing the gains I had already made.

7/16 Bought 56 shares of TSLA for $309.32 each, total cost $17,327.39
7/17 Sold the same shares for $312.00 each, total sale $18,429.15.  A profit of $139.42, about 0.8%.
When the share price declined, I took the small profit that was available.

7/17 Bought 48 shares NFLX as it rebounded from the poor earnings report.  The share price was $383.84, total cost $18,429.15.
Sold them a few minutes last as the price reversed direction.  Shares sold at $380 each, total sale $18,234.80.  A loss of $194.35, about 1%.

7/18 as oil prices have jumped around I saw that MRO was at an attractive level to buy in.
Bought 920 shares of MRO for $20.17 each, total cost $18,557.49.

7/24 sold all 920 shares of MRO for $20.74 each, total sale $19,075.49.  A Profit of $518.00, about 2.7%.

7/24 Bought back into TSLA, 66 shares for $301.56 each, total cost $19,907.57
I missed several great cash-out opportunities because I was working and not able to watch it.
7/27 Finally sold for $302.95 per share as the price began to plummet.  Made a profit of $81.91, about 0.4%.

7/27 Bought 548 shares of TWTR, for $36.44 each, total cost $19,974.07.
I was thinking the share price might rebound after a bad earnings report sent the shares on a premarket slide.
I was wrong, the price continued to decline, I sold when the price reached $35.98.  Total sale $19,711.80, a loss of $262.27, about 1.3%.

New CRYPTO Investment

As the week drew to a close and Bitcoin continued to look strong I bought into RIOT, a company whose primary business is the mining of cryptocurrencies.  I bought 1,300 shares for $7.69 each, total cost $10,001.56.  As the price of Bitcoin rises this stock will likely follow.  If the price of Bitcoin declines this stock is likely to follow.  I will hold this stock until I can cash out a good profit or Bitcoin collapses.

Final Notes

Every Friday I contribute $50 into my Brokerage account and $105 to my IRA.  I did so on both 7/20 and 7/27.

On 7/27 I bought 25 shares of MJ an ETF that follows the legal weed industry.  I paid $26.50 per share, $667.45 total.
This is part of my retirement, my goal is about 25% in this ETF and the other 75% in PRGFX, a fund that follows the S&P500.
You can always view all my current investments here.

I had a side hustle come through for a nice profit of $1,270.00.  I deposited this into my brokerage account on 7/17.

R2B coin, a new cryptocurrency, that I put $543 into back in February, is scheduled to begin trading on 8/23.  The current listed value is over $32,000. Follow this blog to see if I can actually sell the coins for anything close to that.

I have made several high-risk, high-reward bets in the past few months.  Follow this blog to see what makes a profit and what goes bust.  Real Profits, Real Losses, FREE LESSONS!

Thanks for reading and Happy Trading!

The Secret Sauce: What it Takes to be a Winning Trader

We all have aspirations of buying into the next Apple or Amazon for a few dollars or even pennies a share.  The problem is the waiting, we all want that return tomorrow.  Take a look at the charts for Amazon and Apple below; a $10,000 investment 15-20 years ago would make you a millionaire now.

I want you to understand something right now, no one knows what a stock will do tomorrow.  Apple is an industry leader with revolutionary products.  One of Apple’s most successful products was the iPod.  It’s mostly obsolete now but they were all the rage in the early 2000’s.  Do you remember the Zune?  That was Microsoft’s competing product, it was a total flop.  Had the Zune become the dominant product, Apple might never have achieved all the success that the iPhone and iPad have brought it.

AAPL was able to build off its success and start the smartphone as we know it today.  Without that initial success of the iPod, we might only remember that AAPL built the first personal computer  then competed with HP and Dell in the personal computer market.  Instead, we have a revolutionary company that leads the tech sector in innovation.

One more thing to note on these charts, look at the dips that occur as the stock price rises.  Some of the dips are 10-15%.  Not everyone has the nerve to ride this roller coaster for this long.

Investing vs Trading

The INVESTMENTS in Amazon and Apple could have brought you fortune if you were able to accurately predict the future 15-20 years ago and had the discipline to hold the stock even during down times.  Trading is very different than investing.  While both are essential parts of the market, but they have very different requirements.  Investing requires patience and diversification.  Trading requires you to be able to gauge reactions in the short term.  The topic of trading v. investing is more complex and I have addressed it further here.

Ok enough is enough, I promised you the secret to profitable trading.  I can bore you all day with definitions and charts.  What does it take?

The Winning Trader

Nothing worth having in life comes easy or fast.  So if you are expecting to stand on your left foot and jump three times and trading success will arrive please stop reading and find another scheme.  The secret to being a winning trader is experience.  Not a special formula or chart overlay.  No amount of artificial intelligence or reading will make you a winning trader.  If you want to learn to trade and get good at it, you must start trading!  That’s it!  Simple right?

Simple, yes, but long, tedious and excruciating.  You will lose money at some point, guaranteed; maybe not your first trade and maybe not in your first week.  The key is to manage your money and manage your risk.  Managing those two items takes, you guessed it, experience!  Before starting this journey I read Toni Turner’s A Beginner’s Guide to Day Trading (follow the link to get a copy for yourself).  She spent the first 4 chapters talking about the mental game of trading.  It wasn’t until chapter 5 that she discussed actual trades and actual stocks.

Trading is a very emotional game and if you have read enough of my earlier posts, I have plenty of tales to tell about losing money when I let emotion get in the way.  You must condition yourself to detach from the trades.  Forget that the money you are trading with is real and your own.  You must concentrate on making good trades and then you will become a profitable and winning trader.  The discipline is only achieved with experience.

Your Next Step

Start trading!  Open a FREE account with Robinhood and start trading for free!  The money is real but they don’t charge any commissions.  I have a full review of the platform here.  Follow this link and when you sign up and make your first deposit you will receive a free share of stock!  What better to start off you trading endeavor than with a guaranteed profitable move?

Thanks for reading and happy trading!  Follow this blog for lots more insights and lessons.  Follow me on Twitter for live trades.