First Successful Short (Albeit a small one)

So on news of SCIL's 3rd quarter earnings the stock promptly jumped about 100%. While the earnings news was good, it wasnt deserving of a double in the stock price. After my screwup with FONR the other day I made sure I did this one right, at least on the short sell. I was a little late to the game (got to put more faith in my initial gut feeling and waited a bit too long) and sold short at $6.05. After watching it bounce back up about 5 seconds after I bought it to about $6.40 I waited until it dropped down to about $5.75 and then started an uptick again. I closed out my position at $5.80 and made a few bucks ($50 to be exact, not much I know but better than losing it.)

So was it the right play to sell then, well if you look where the stock ended up for the day, at about $5 the short answer would be no, however given the volatility of the stock and the fact that it had a resistance point at about $5.75 I think it was the right thing to do. I didnt want to carry the stock into the weekend and it could just as easily have continued its flatline, instead of having the bottom drop out. If I had been smart (and monitoring the stock) once the candles started trending red again at about 3:15pm I would have sold some shares short again and closed out again just before the bell. But I didnt and so it is just wishful thinking.

lesson of the day act early on the news dont watch the action happen right in front of you.

Why Schwab sucks for Penny Stocks

So there were a couple of good plays today and I got in on none of them, why you ask? Well because they are what is called a hard to borrow stock (HTB). These stocks exist across all markets and are defined by Investopedia as: A list used by brokerages to indicate securities considered difficult or unavailable to borrow for short selling transactions.

Investopedia explains Hard-To-Borrow List
The hard-to-borrow list expedites short selling transactions. According to the SEC and NASD, securities not found on this list are assumed to be in sufficient quantity and available for short sales. Those stocks on the list are still available for short selling - however, brokerages and investors must take extra measures to search the stocks out and ensure their delivery before they are sold short.

Ok so hard to borrow stocks are out there and all brokers basically work from essentially the same list (though I have found that some brokers actually have stock and others don't), but Schwab sucks because they want you to spend a minimum of $100,000 to short sell a HTB stock. This puts a severe crimp in shorting penny stocks as most are HTB stocks and I as well as most individual investors don't have a $100k for a single transaction.

I funded my thinkorswim account and hopefully they are better about shorting HTB stocks (I have heard they are at least about minimums, even though they may not have them available). Plus they charge a flat 9.99 fee instead of Schwabs 12.95.

A little gambling

So I made only a single trade today, 20,000 shares of DPHIQ @0.0185. It had opened the day down 0.04 and finished at about 0.021. This is a bit of a gamble because it is Delphi corporation (the major parts supplier to GM) and they just emerged from bankruptcy. The way I figure it in my laymans view is that Delphi stock has got to be worth more than 0.02 in the long run. They have an expertise that is matched by few and while the auto business is not in great shape now, its not like anyone has invented the flying car or made some revolutionary mode of transportation. (remember the hype on the Segway prior to its being announced) GM still needs parts as do other vehicle manufacturers. Delphi has refocused its efforts and significantly reduced the number of parts it supplies as well as its labor and fixed costs. In the long run I think this company will return to profitability quickly with a slight uptick in car sales.

This is one of those pennystocks that is not a pump and dump, it is basically a gamble as to whether the company can make something of itself or not. If not I am out $385, however with even the slightest movement upward (and in fact it went up about 0.00135 after my purchase, a whopping $27) this could mean big returns. The way I see this pick it is a safe gamble, I can probably sell at about any time and get back at least a healthy portion of my money but the upside is huge.

Importance of Verifying Trades

So I thought I shorted FONR this morning. I got in a little late, it doubled on some news last night, but still thought that it would make a good short at 3.90 and so I placed the order on Schwab for 250 shares. I also placed a buy order at the same time at 3.66 as I was heading out for a bit and while I thought it would drop lower than this wanted to make sure that if it hit this target while I was out that the order went through.

So anyways I get back after being gone for an hour or so and check in and low and behold the short sell on Schwab didn't go through, it got canceled for some reason (though I swear it said it was filled this morning and I am going through trying to see if I can find confirmation of it). However my buy order at 3.66 which was supposed to cover the short sell did go through and the stock promptly dropped another 0.15 prior to me selling it. Now I probably should have gone ahead and shorted more to cover my initial screwup as it is still heading down but I figured I would just let this lesson sink in a bit.

Reminder to self: measure twice cut once or always verify the trade went through.

UPDATE: I should have shorted more as I stated above and my stupid mistake would have been wiped out, as I write this FONR has fallen to 3.25 thus another 0.30 from when I had to sell. That 0.30 would have more than made up for the commissions and the bone head move. Oh well maybe next time.

Getting Back Into It

Spent the morning in the timalerts chatroom, trying to follow what might be a decent play, unfortunately nothing yet. A couple of good big rises but was too slow to move and a couple of potential short opportunities but want to get my mind fully into it before making that leap. Also still waiting for my thinkorswim (TOS) account to open so I can eventually get access to hard to borrow stocks. Looks like today might turn out to be not much of a trading day for me since I am currently limited to 3 day trades per week (remember SEC limits 3 day trades per account if less than $25k and I am currently playing with about 1/5 of that). Plus not much solid out there, the one good "pump and dump" TPIV got leaked early and saw most of its spike in premarket trading, so not much left.

Once TOS account is open in theory I can do 6 day trades per week, 3 on schwab and 3 on TOS.

Candlesticks

I kept reading about candlesticks in all the stock analyst stuff and had no idea what they were talking about, I figured that they couldnt be investing in candles (stock traders i dont think are the kind who are most likely to buy loads of candles.) So I decided to look into and happened on this site: http://www.stockta.com/cgi-bin/school.pl

which had the below posted on candlesticks which interestingly enough started out in Japan as a tool in rice trading (who knew). I am still working on what constitutes a spinning top vs. a Doji but the more you look at it the more it makes sense.

Also nothing of particular interest seems to be in the works for tomorrow.

History
Candlestick charting can be traced back to the 1700's as a tool used for rice trading. One of the great rice traders of the 1800's, Homma is widely credited for developing the candlestick charting basics used today. In the west, Candlestick Charting has grown in popularity and use, thanks to the efforts of Steve Nisson and Greg Morris. Candlestick charts are visually appealing and can be a valuable tool in the technicians toolbox as it gives insight into current investor sentiment, allowing for the determination of short term tops and bottoms.

Candlestick Terms

Candle



The candle is comprised of two parts, the body and the shadows. The body encompasses the open and closing price for the period. The candle body is black if the security closed below the open, and white if the close was higher than the open for the period. The candlestick shadow encompasses the intraperiod high and low.
(Note: In candlestick charting the following periods are often used; 5 min, 15 min, 1 hour, daily and weekly). Long shadows, show that the trading extended well beyond the opening and/or closing price, while short shadows, show that trading was confined closely to the open and/or closing price.

Long, and Short Bodies; Marubozo and Spinning Tops

A long body, is a candlestick with a very long body when compared with other recent candles. White bodies show intense buying pressure, where as black bodies show intense selling pressures. Long white candles are generally bullish, but are also found at blowout tops, so they must be interpreted with surrounding candles. Similar long black candles are generally bearish, but are also found at capitulation bottoms. Long bodies with no upper and lower shadows are called Marubozo's. Marubozo's are more powerful than long candles as they show a steady advance (or decline if black)throughout the trading period. A short candle is the opposite of a long candle and usually implies consolidation, as the stock traded in a narrow range during the period. Short candles with long upper and lower shadows are called spinning tops, and are potential reversal signs, as it shows that despite trading in a wide range, the security closed close to the open. A spinning top becomes a doji as the closing price approaches the open price.

Doji's

Doji's are powerful reversal indicating candlesticks and are formed when the security opens and closes at the same level, implying indecision in the stock price. Depending on the location and length of the shadows, doji's can be categorized into the following formations: doji, long legged-doji, butterfly doji, gravestone doji, 4 price doji, etc. Doji's become more significant when seen after an extended rally of long bodied candles (bullish or bearish) and are confirmed with an engulfing.( a long candlestick formed over the next period which engulfs the doji body).

A long legged-doji is formed when the stock opens at a level, trades in a considerable trading range only to close at the same level as it opened. Long legged-doji's become more powerful when preceded by small candles, as a sudden burst of volatility in a relative unvolatile stock, can imply a trend change is coming.


Dragonfly Doji's are doji's that opened at the high of a session, had a considerable interperiod decline, then find support to rally back to close at the same level as the open. Dragonfly Doji's are often seen after a moderate decline, and are bottom reversal indicators when confirmed with a bullish engulfing.

Gravestone Doji's are the opposite of the Dragonfly Doji and are top reversal indicators when confirmed with bearish engulfings. As the name implies, gravestone doji's look like a gravestone, and could signal impending doom for a stock.

4 price doji's occur when the stock opens, trades and closes at virtually the same level for the period. These are very rare, except with thinly traded securities.

Engulfings

An engulfing occurs when the candle body engulfs the previous candles body. White engulfing candles are bullish engulfings, where as black engulfing candles are bearish engulfings. Bullish engulfings are commonly found at short term bottoms, where as bearish engulfings at tops. Many candlesticks, such as dojis, hammers, hanging mans need confirmation of a trend change with an engulfing (bullish engulfing at bottoms, bearish engulfings at tops).

Hammers/ Hanging Man

Hammers and hanging man's are short body candle's with little or no upper shadow, and a lower shadow at lease twice as long as the candle body. Hammers are formed after declines, and hanging man's after advances. When confirmed they become powerful reversal signals, especially the hammer. The expression "hammers out a bottom" refers to when after the open, the downtrend in a stock continues, until at some point, enough buying interest is generated, to bring prices close to where they open. Confirmation comes from a bullish engulfing, showing the trader that the up trend is established. The color of the hanging man/hammer is unimportant, but some consider white hammers and black hanging man's more potent reversal signals.

Gaps

A gap occurs when a candlestick body doesn't fall within the range of the previous candlestick body, a more loosely interpreted definition of a gap, requires no overlap between the shadows, making it obvious on a bar chart as well. You will often hear "All Gaps Get Filled", which is untrue. While the vast majority of gaps do get filled, you can find some charts, where a gap has never filled. Depending on how you define a gap, should base your definition of a gap fill. For instance I consider a gap when 2 bodies don't overlap, so I wait for a body fill to call the gap close. If one was using the criteria of shadow overlap, a gap fill would occur with a shadow fill. Gaps are typically continuation patterns, and sometimes mark the 50% point of a move. They become more significant as the stock approaches the level of the gap as it often acts as a magnet. During a gap fill, it is considered bearish closing below the bottom of the gap and bullish closing above it. Once formed gap's will often serve as strong support/resistance levels even after being closed for some time.

Exhaustion gaps signify the end of market bottoms and tops, where initially overwhelming buying pressure, is soon consumed by selling pressure (and vice versa for bottoms). Exhaustion gaps have significant volume associated with them, and are often closed within 3 trading days. Sometimes an exhaustion gap will be followed by another gap at the same levels, some examples are shooting stars, doji stars, abandoned baby, etc. These 2 gap formation are powerful reversal signal's.

Three Gap Play occurs when a stock gaps in the direction of the trend for close to 3 consecutive periods, with the final gap is an exhaustion gap that is larger then the previous gaps with respect to size and volume. After the exhaustion gap, the trend changes all of the gaps immediately get filled. After the final gap is filled, the stock turns and continues well beyond the initial exhaustion gap. Although pretty rare, they can be very profitable if recognized early and swing traded.

Just starting

So I used to day trade back in college, when internet speeds were still measured in kb. Recently I decided to get back into it and to document for posterity how it goes right from the begining. I will be posting all my moments of brilliance, idiocy, and everywhere in between. What interested me to start with was pennystocks. I don't have a huge bankroll, starting with a couple of thousand dollars, so pennystocks makes sense. I used to focus on stocks that seemed to have regular volatility but fell within a high/low band (bollinger band I have since learned) and this made making small but consistent profits rather easy. I never got rich off of this but it did help me pay my way through engineering school. Then my first job, marriage, and several wonderful children came and I didnt seem to have time or the resources to play the market anymore.

Recently I decided to make it a priority and started up again. I opened an account with Schwab (I will write about my experience with them on some other post as it relates to pennystocks) and have had money in since the begining of the year. My account is up about 25% YTD, but that is nothing special as the market has rebounded quite well.

After being in the market with some "safe" stocks since the begining of the year I decided I wanted to try something similar to what I had done back in college. You may have heard of "pump and dumps" basically it is a company that is essentially crap that is traded OTC and pays an ad agency to create hype around the company and thus the stock, this drives the stock up tremendously in the short term and then invariably it comes crashing down, both of which create opportunities to cash in. I started looking into it and found two places that seemed to be interesting, www.timalerts.com and www.reapertrades.com, both seem to be straight up advice on penny stocks and in particular on pump and dumps. Timothy Sykes owns timalerts.com and he made a boatload of money playing this game and shorting the stocks, then he blew most of his money, however he is on the way back up again, you can watch him on covestor also.

After doing to some digging I decided to give timalerts a try at just under $50 a month. This gives me access to the site which has a chat room dedicated to these kinds of trades and also gets me all of the trade alerts. Reapertrades has some great input and is free (for now).

I started out my first trade breaking an old rule, don't let emotion get in the way so I sunk some money into SNPY (it really doesnt matter what the company does) on some hype and wound up dumping 25% of the value in about 3 hours. I was eager to get back into and didnt wait or do the proper research (even trades on crappy companies need to be researched). Bad Trade #1

So the next day I decided to do it right, I looked at all the information coming from timalerts and reapertrades and both highlighted a company GSAE which seemed primed to take off, they had issued news prior to opening and while it seemed like great news it really amounted to BS, however I kept an eye on it and decided to buy after doing a little more digging. I bought in at 0.93 and sold about 2 hours later at $1.35 for an easy 45% profit after my schwab commissions. Good Trade #1

Next day I was feeling pretty good and decided to try something new (bad idea seeing as how the whole thing was brand new) and sunk some money into a real penny stock and wound up dropping about 20% again. Bad Trade #2 Total Return since inception of pennystock account: -5%.

So I have not been able to give a real assessment yet of timalerts or reapertrades other than that the one pick that I made money on came from their watchlist, while the other two did not. Thus from here on out I am going to try and stick with them even if there is a "sure thing".

The one thing I will say is that both of the brokerages that they use (thinkorswim or IB) seem to be much more conducive to the type of trading that they make most of their money on, that is shorting OTC stocks. Schwab (or most of the other big brokers) dont really allow much flexibility with shorting OTC stocks. So I may try to shift some money into thinkorswim since IB requires a minimum start of $10k.

So this ends my first post. As time goes on hopefully I will learn something (and ideally make some money) and anyone who happens to read along might learn something or at least find it amusing.