Trading Psychology

Trading History

2005 Newbie to trading, I was a buy and hold investor

2006 Understanding fundamentals better, I continued being a buy and hold investor

2007 With credit crisis on the horizon, buy and hold didn’t work and I focused strictly on day/swing trading

2008 With recession strongly underway, I focused on companies that made for good shorts and kept shorting any potential pops

2009 – … With mixed markets and no clear edge, I focused on micro-caps and penny stocks since I realized this is where retail investors have better chance of profiting. Hedge funds and large institutions stay away from micro-cap and penny stocks due to its scalability issues which is actually positive for retail investors. In 2011 I have started using options on certain crazy/volatile plays. Use options whenever possible especially for large cap stocks (since it needs less capital and your max loss is already determined)

Trading Strategy
I look for stocks that have gone parabolic/supernova (up more than 100% in a short time) and wait to short them on the sell off.

Trading Rules

Rule #1: Play stocks with market capital less than 2 billion. (Small caps). Volume should be at least 300k. Use this scanner to track big movers. Additionally use this scanner to view overall top movers

Make a watch-list of ONLY 10-12 stocks per day. Avoid watching too many stocks. Stocks that look good, but didn’t make it to the watch-list should be monitored via an alert system.

Rule #2: Never never ever short a stock into strength, but rather into weakness.

Rule #3: Never never ever short a stock on its first spike up day, otherwise get ready to be squeezed.

Rule #4: Not all stocks make up for good shorting, especially ones that report good earnings, buyout rumors, get big contracts, get FDA approval, patent approval, does share buyback, insider buying, does debt reduction.  Stocks up on no news,  up on momentum trading, 200-300% moves, bad earnings, share dilution, newsletter pumps, stock promotion all make good short candidates.

Rule #5: Wait for the parabolic stock to start selling off to short into. 3 ways to approach it then:

1. Short when a key resistance cannot be broken.

2. Short when a key support is taken out.

3. Short when the stock goes red (below yesterdays close).

Rule #6: Fading volume indicates parabolic stock running out of steam due to lack of buying and potential for short selling.

Rule #7: Stop losses are critical to trading. Stops save lives. Always use stop losses to cut losses quickly. Losses are inevitable, accept it. Smaller the losses, bigger the account gets.

Rule #8: Avoid playing stocks with high spread. Very unpredictable, creates huge swings and hard to get out at desired price levels.

Rule #9: Never play the earnings game. It is nothing but pure pure gamble, where the winning probability is only 50%.