Penny Stocks

Trading Penny Stocks: Step by Step Guide and +$193k in 12mo

Trading Penny Stocks: Step by Step Guide

 

One of my early introductions to the stock market was when a friend in high school made tens of thousands of dollars day trading penny stocks over summer break.  This would have been around 1999/2000 and at the time trading online with Ameritrade was still a new concept.  I always knew there was potential to make money in the stock market with a small account but I didn’t know how.  I decided to open my own account but I was trading stocks like CAT, IBM, and AAPL.  With my $1k account I made about $17 dollars.  I was investing in the wrong stocks for big percentage growth.

 

 

Beginners Guide to Trading Penny Stocks

Many people would consider becoming a millionaire by day trading Penny Stocks to be the ultimate rags to riches story.  By trading the cheapest stocks on the market you can invest small amounts of money and see huge returns.  But how hard is to make a living day trading penny stocks?  It’s actually a lot harder than most would imagine.  The allure of quick returns draws the crowds into the penny stock market, where many end up losing their shirts.  At the end of the day, only 10% of active traders in the market will actually be profitable.  The rest are giving their money away to better traders.

After about 18 months of trial and error, I realized that there are a handful of stocks everyday that make big moves.  The trick is learning to find those stocks BEFORE they make the big move.  That became the basis for the momentum day trading strategy that I’m trading today.  I apply this to day trading penny stocks & small cap stocks.

 

Why Should You Listen to Me?

 

I made $94,119.54 Day Trading Penny Stocks in 3 months

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penny stocks

penny stocks

 

Stocks under $5.00 per share are considered Penny Stocks

Penny Stocks are defined by the SEC as any security issued by a small company that is trading below $5.00.  In the past penny stocks used to literally mean stocks trading under $1.00.  Stocks trading under $1.00 were almost always small companies struggling to find their place in the market and as a result those securities were very speculative investments for traders or investors.  In this day and age, securities priced between $1-10.o0 in many cases still represent some of the most speculative and risky investments.  This is especially true for small companies in the Biotech, Internet, and Fintech sectors.  These stocks can come out with news overnight that result in a 50% drop to the downside or a 100% squeeze to the upside.  Anyone investing in these types of securities has to be prepared for the possibility of a total loss.

 

Penny Stocks

 

Are you a Penny Stock Day Trader or a Penny Stock Investor?

In my experience penny stocks are so volatile, unpredictable, and subject to market manipulation, that being an investor is nearly impossible.  You need to have a short term outlook in order to survive, and you need to be one of the first traders to get in and the first traders to get out with profit.  Remember that a penny stock company can have a horrible balance sheet, awful fundamentals, and then spike up 200% on breaking news of a new partnership.

For this reason, shorting penny stocks expecting the companies will go bankrupt is extremely risky.  The fundamentals will matter eventually, but in the meantime, most investors can’t handle holding a position down 200%.  I’m a penny stock day trader.  This means I follow a few very specific rules about how to pick stocks and how to trade them.  Day Trading Penny Stocks at this point is like riding a bike for me.  As this point, I can make $100k in 3 months without breaking a sweat, but remember it took me years to get to this point.

One of my favorite things is working with beginner traders in our Day Trading Courses because I know what it’s like to be brand new tot he market!  The reason working with beginner traders is so much fun is because I remember what it was like to be a beginner trader.  I consider myself to be no different from beginner traders, the only difference is that I’m a little further down the road to success and I can look back at where you are today and know what it takes to get you to where I am today.

 

5 Tips to Making A Living Day Trading Penny Stocks

1. Avoid OTC/Pink Sheet listed Penny Stocks.  Companies trading on the OTC (over the counter) market have fewer regulations placed upon them as compared with stocks listed on the NASDAQ and NYSE.  As a result, stocks on the OTC market are highly susceptible to manipulation and fraud.  The only penny stocks I trade are listed on the NYSE or NASDAQ.  I know these companies are facing stricter requirements to maintain compliance

2. Don’t fall for the Promotional Pumps!  Many OTC Penny Stocks become promoted at one point or another.  These promotions often come with messages like “this stock will be the next Apple”.  The reality is, the next Apple is not likely to come from the penny stock world.  It’s more likely the next big tech company will start as a large company that IPO’s well above the penny stock price range, and then continues higher.  When you are buying penny stocks to hold in hopes that it will be the next Apple, you become an investor of one of the most speculative financial instrument on the market.

3. Only Trade Penny Stocks with Volume.  It’s really important to avoid illiquid penny stocks.  Most penny stocks trade only a few thousand shares a day.  However, when a penny stock has breaking news, they will often trade at 40-50x relative volume achieving 5 to 10 million shares of volume on a big day.  These are the days I’ll trade a penny stock.  The good news is that there is a penny stock having a once in a year event almost everyday!  This means as a trader there is almost always something to look at.

4. The Hit and Run Approach.  Once a penny stock has met my standards for being worthy of trading (having news, volume, and being NYSE/NASDAQ listed), I’ll look for one of my Go To setups.  These include Momentum, Gap and Go, and Reversal Trades.  An important rule is that I should never over trade these stocks.  For that reason, I only take the most obvious setups.  I buy in the place where I expect thousands of other traders will also enter.  These entries are based on support and resistance patterns.  Once I have a profit, I sell 1/2 my position and adjust my stop loss to breakeven.  By quickly taking profit and adjust stops, I ensure small winners at the least.  Occasionally I’ll get into a penny stock and get a big winner, but as a trader, I look for many small wins.

5. Making A Living 1 Trade at a Time.  It’s important that I don’t look to hit home runs, to make 10-20k in a single trade.  My focus is to trade penny stocks almost everyday and have a daily goal of $500-1k/day.  That means anywhere from 100-200k in annual profits.  Many small base hits ads up over the course of weeks, months and years.  My focus is making a living by trading, rather than investing in penny stocks.

Penny Stocks

Want to learn more?

Many beginner traders start their trading journey with penny stocks.  We actively encourage traders to AVOID penny stocks and instead trader stocks priced between $3-10.00.  These are stocks that have the potential to make 20-30% intraday move, but retain the security of being listed on NYSE and NASDAQ.  As a result, they are more popular among traders and are often considered safer vehicles for trading and investing.  If you want to learn more about the trading strategies I use everyday, check out our Day Trading Courses.

As you probably already know, I’m an active trader of stocks priced between $2-20, and occasionally trading stocks as high as $200.  I trade stocks reporting breaking news such as earnings, contracts, FDA announcements, or other PR’s.  I look for that stock that is having a once a year event because that’s the stock every day trader will be watching.  You can watch me trading everyday in our Day Trading Chat Room.

Trade Ideas Review by Warrior Trading

Warrior Trading Review of Trade Ideas

Click Here to Download my Custom Trade-Ideas Layout

Hey everyone!  Today we’re going to take a look at Trade-Ideas.  I have used a number of different scanning products over the years but once I found Trade Ideas I knew I found my lifetime scanning provider. There is simply no comparison between other products. When I first signed up to Trade Ideas I thought the price was high for a piece of software that only provides scanning. What I didn’t realize was how fundamental scanning is for every trader. In our trading courses and in our chat room I primarily teach a Momentum Trading Strategy. This strategy requires finding fast moving stocks and taking trades on the first or second pullbacks. These pullbacks usually take the form of bull flags or flat top breakouts. As an educator it’s easy for me to teach trading strategies and tell students what good charts look like. The fact is, it’s easy to look back on a chart and find a pattern. The hard part, but the most important element for successful trading, is finding patterns in real-time. This is why traders need the best tools.

 

Trade Ideas is the BEST Tool for Scanning

When you login to Trade Ideas you can choose from a handful of pre-configured scanning settings. These include bearish, bullish, and neutral scanning options. As a student of our Trading Courses you benefit from downloading our set of proprietary scanner settings that we have developed over the course of several years. When I’m looking for a scanner I think about the setup I’m hunting for. In the case of a bull flag I’ll be looking for a stock that made a 5% move up in the last 60 minutes and has been consolidating in a 1% range in the last 15minutes. I then continue to add some more filters to scan for stocks only priced between $3.00 and $20.00. Additionally I can add filters to only scan for stocks with a market cap of less than $500m, or an outstanding float of under 40m shares, or a ratio of short interest of at least 10%. There is literally an endless combination of scanner settings. At Warrior Trading we have customized Trade Ideas to find stocks that meet the criteria of our trading strategies.

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I would be LOST without Trade ideas

Every single morning the first thing I do is open Trade Ideas and check my pre-market scans. I look for stocks moving and take particular notice to low float and small cap runners. My routine every single day is the same. Like many other professional careers, routine is very important. I do the same thing everyday in attempt to repeat my success day in and day out. Trade Ideas is a fundamental part of my success.  I start by scanning the market for the leading gappers, and then I open up my Benzinga News Feed and begin searching for the catalysts.

 

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15% Discount on Trade Ideas – Coupon Code: DAYTRADEWARRIOR15

Over the years we have worked closely with Dan Mirkin, CEO of Trade Ideas.  We present webinars together and collaborate to develop custom scanner settings.  We have worked together to offer Warrior Trading members a 15% special discount on their Trade-Ideas subscriptions.

 

Reviews by Warrior Trading

 

robinhood app review

Robinhood Review – The Real Cost of “Free Trades”

Robinhood Review

UPDATE 10/24/2016:  Since this review was published Robinhood has taken steps to improve user experience (UX), and add features.  As is common when many new brokers, new features are consistently being released as they are developed.  Some of the important features include Robinhood Gold, which offers margin and leverage for more buying power.  While this does improve usability, the lack of Level 2 data and mobile only app still make this platform difficult for day trading.

5/12/2016: In this broker review, we’re going to discuss the popular trading app called “Robinhood”.  Keep in mind that mobile apps change frequently some between the time we wrote this review and you are reading it there may be some changes on the Robinhood interface.  I get emails asking for a good Robinhood Review several times a week.  Robinhood has gained the attention of part-time traders and investors for it’s “Free Trades” commission structure.  It’s sure does sound appealing!  Anyone who has been in the market understands commissions are an expensive part of the business.  Robinhood states on their website “Our mission is to democratize access to the financial markets”.

 

 

For those who aren’t familiar with how commissions work, commissions are payments to your broker for the purchase or sale of stock.  Generally speaking, commissions make up the bulk of a brokers profits.  Brokers also profit from the interest collected on cash they are holding and from the interest gained from lending traders money on Margin.  Commission fees generally range from $3.95-19.99 per trade.  An active trader that places 10 orders in 1 day could be looking at anywhere from $39.50 to $199.90 in daily commissions.  Clearly, these add up over time and eat into your profits.  We highly suggest traders check out Suretrader (see our Suretrader Review here) or Interactive Brokers (see our Interactive Brokers review here) before deciding on a broker.

 

The Pros of Robinhood’s Free Trades Offer

  1. Free Trades, zero commissions

 

If you are trading at a firm like Ameritrade or E*Trade, you could easily be paying $10-15/trade.  That means it’s not unlikely for an active trader to generate $200 in commissions each day.  Just think, $200/day is $52k/year.  And that is going straight to the broker!  This makes any reduction in commissions an appealing offer.  When Robinhood first started advertising their Free Trades commission structure I immediately thought, “what’s the catch?”.  Robinhood, as advertised, charges $0.00 commission on buys and sells.  In their Fees Section they note that traders still have to pay the FINRA and SEC fees on the sell orders.  These generally amount to less than 50 cents per trade, so it’s very marginal.  The biggest advantage to Robinhood is the Free Trades.  That’s their selling point, but it’s the only selling point.

 

Interested in having your Brokers pay for your education?

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The True Cost of Robinhoods Free Trades Offer

  1. No Leverage means Cash Balance Margin Only
  2. Mobile App Only Trading means No Hot Keys or 1 Click Orders
  3. No Level 2 or Time & Sales means No Reading Market Sentiment
  4. No Short Selling

 

Robinhood is lacking several critical features for day trading.  They don’t offer a Level 2 or Time & Sales window.  That means you can’t scalp momentum trade breakouts by watching the big sellers thin out, or jump in long because you saw that 100k share bidder pop up.  A day trader cannot actively trade the markets without Level 2 or Time & Sales.  It’s like a carpenter trying to build a house without an electric drill.  Sure, you could do it, but it would only make you slower, less competent, and less effective.  So it doesn’t make any sense.  Secondly, Robinhood currently doesn’t allow leverage.  Trading on leverage is a controversial topic.  It’s trading on borrowed money.

In 2016 I took a $1k trading account, and aggressively using leverage, I grew that account to over $8,600.00 in less than 1 month.  That wouldn’t have been possible with Robinhood for 2 reasons.  The first reason is that they don’t allow Leverage, and the 2nd reason is the Pattern Day Trader (PDT) Rule.  This means you can’t actively trade on margin unless you have a $25k min balance.  You can actively trade with a cash account, but you have to wait 3 days for each trade to settle, which effectively makes it so you can only daytrade 2-3 times/week.  Lastly, Robinhood doesn’t allow short selling.  This means you can’t short stocks, profit as they go lower, and then buy back shares at a lower price.

 

Start Day Trading with $500 at Suretrader

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Robinhood Review – Not suitable for Active Traders & Passive Traders don’t need it

When you put together this list of cons, you find yourself with an incomplete broker.  It seems they made the decision to go with zero commissions at the sacrifice of features that have been standard on every broker for many years.  While mobile apps are extremely popular right now, trading from a mobile app is a horrible user experience.  Robinhood, in all fairness, has done a great job with user experience, but from a practicality standpoint, it still fails to offer the speed necessary to be a day trader.  If you want to day trade, Robinhood is not the solution. In my opinion, Robinhood is only suitable for part-time traders and investors who make fewer than 3-5 trades per week.

Part-time traders are often going to be working professionals who want to take a few trades on the side.  Perhaps a doctor who wants to add to his $CELG position, an accountant who wants to add to his $VRX short, or a banker who wants to add Warren Buffett’s latest stock choice.  These individuals all have one thing in common.  They are not day traders.  They are taking positions and planning to hold them for several days at a minimum.

As a result, they don’t need Level 2, Time & Sales, or Hot Keys.  They also probably won’t worry about not being able to short stocks or trade with leverage.  So they may not take issue with the lack of those features.  But of course on the other hand, since they are only trading 3-5 times per week, commissions were never that big of an issue for them.  And this is the reason Robinhood fails to catch my interest.  This is only desirable for people who feel they could use it to save $50-75/week, and that has never been enough money for me to justify changing brokers, and I doubt it would be enough for the working professionals who would be the best fit for Robinhood.  In short, it’s not suitable for active traders, and passive traders don’t need it.

Most passive traders or investors will happily continue using Ameritrade (See our TDAmeritrade Review Here) or E*Trade for the convenience of online bill pay, credit and debit cards linked to the account, and an advanced desktop platform should they decide to dabble in active trading strategies.  For those individuals, the extra commissions with full services brokers is worth the cost.

 

To read about our suggestions for the Top 3 Online Stock Brokers, check out this blog post.

 

Screen shots of Robinhood

 

Reviews by Warrior Trading

 

 

Why Day Trading is like Crab Fishing in the Bering Sea

Why Day Trading is like Crab Fishing in the Bering Sea

 

 

The Top 4 Reasons Trading is like Fishing in the Bering Sea

1) Sometimes despite all your efforts, you come up empty!
2) Sometimes you take a big risk knowing you’ll either be a hero or a zero
3) Mechanical and Technical Failures are part of the job
4) There are forces out of our control including slow seasons, slow trading.

 

 

As you all know, I’m a full time day trader, but what you may not know, is that I’m a reality show enthusiast.  I spend my evenings watching reality TV and working on my laptop.  I’m currently working my way through the Deadliest Catch 12!  As I watch, I cant help draw some comparisons between day trading and crab fishing.

 

Dramamine and Pony Tails

It’s true that I don’t need Dramamine to come to work and the only time I get hurt is when I pinch my pony tail in my headphones.  What does remind me of fishing is the need for a “take things in stride” mentality.  How many of us have put in a full 8hr day only to walk away from the market with thousands less than we started?  I’ve personally lost tens of thousands of dollars on my worst days.  On these bad days while I’m watching the fishermen pull in empty pots after spending thousands of dollars on bait and fuel, I feel a sort of kinship.  We both put in everything we could, and came up empty.  It’s not always of any fault of our own.  Sometimes you take all the trades you strategy says you should take, or you set your pots where you’ve experienced great fishing in the past, but it just doesn’t work.  You tell yourself “Hey, I’m still the guy that had that big one last week”, but you can’t help but feel you’re only as good as your last trade.  There is always that pressure to continue to deliver.  The question is how do you harness that pressure to be motivation instead of stress?

 

Taking the Risk

Good fishing can tempt even the most experienced fishermen to take risk, just as the market can draw traders into high risk positions.  It’s always exciting to see the fishermen setting their pots within a few miles of the ice pack.  They know the ice is moving south, but do they know they can load the boat with crab if they set back on the hot fishing grounds.  Do they set back and let it ride or stack the pots on the boat and move to safer grounds?  Let it ride!!!  How many times have you been in a momentum trade scalping the high of day breaks higher and higher, knowing you are tempting fate?  Whether you are fishing along the ice pack or trading a stock like $PRGN that is up 1000% in 1 day, there are many times when then temptation to take a risk is overpowering.  The harsh reality is that in both fishing, and trading, a momentary lapse in judgement can threaten your entire career.  Losing a string of 100 pots could easily set a fisherman back $100,000, just like shorting $KBIO can set a trader back $100k in almost no time at all!  It’s important to know when to be aggressive, but always keep the big picture in mind.  You never want to make a decision that has the power to ruin your year, or even worse, your career.

 

The Joys and Burdens of Being Self Employed

Trading is hard enough without losing the internet in the middle of a trade, or turning on your system in the morning to find a dead monitor.  Being self employed, whether it’s as a fishermen, a day trader, or anything else, is a tremendous privilege.  We are our own bosses, and there is so much freedom in that.  Its a big reason so many of us are trading from home instead of working for a bank.  With all the advantages of being your own boss also come the burdens of making sure you can give yourself a paycheck at the end of the week!  There will be weeks you make 10x more you would have made in an office, and other weeks where you actually lose money.  When I take a $1500 loss day trading it can be a bit frustrating.  On the Deadliest Catch, I watch these fishmen leave the harbor after paying repair bills of tens of thousands, and sometimes hundreds of thousands of dollars.  It’s simply the cost of doing business.  They have made a great business fishing for crab and they simply budget for repairs.  Likewise, we must budget for losses.  Over the course of a month a good trader might expect $20k in profits, $4k in losses, and $1k in commissions, for a net profit of $15k (in this month I made $10k, paid $2500 in commissions, and had less than $500 in losses).  When you put it into perspective, our losses, minor equipment repairs, are simply the cost of doing business as a Day Trader.  They may not be something we look forward to, but the aren’t something we should fear.

 

The Bering Sea is unforgiving, and so is the Stock Market!

The hardest thing for new traders to understand is the concept that losses are okay.  This is no different with fishing.  It’s not about counting each loss or each mistake, it’s about knowing in total, you can produce excellent numbers despite coming up empty 20% of the time.  With trading, you can come up empty 40% of the time and still be very successful.  So each time you fall short, you just have to figure this is paying your dues for the next big winner.  Unfortunately, many traders have an emotional response to loss.  How many of you have doubled down on a bad position?  If you just picked up 20 crab pots in your string and they are all empty, would you set them back?  Of course not!  You cut your losses, stack them on the boat, and move to better fishing grounds.  But as traders we often have this tendency to ignore the obvious and fight against the loss.  Fighting the market, just like fighting the ocean, is a battle you can’t win!  Learning to take your punches quickly and move on to the next opportunity will be the turning point in your career as a new trader.  Sometime the next best opportunity for a big winner will be tomorrow morning.  That means having both the presence of mind, and the patience, to close today in the red and sit on your hands and wait.

 

Failures are part of the process!  Take it in Stride!

If you are fortunate enough to have grown into a profitable trader, make sure you don’t spend your time sweating the small stuff!  You have generated profits in an industry with a 10% success rate.  When we did a survey of our students we found 80% are profitably trading the markets, making them 8x more likely to succeed than the average trader.  Despite there success, each one of them knows the humbling experience of taking a big loss.  Trading is a career where one month you can make 1 years salary, and the next month you make nothing.  This is no different from crab fishing on the Bering Sea.   I know it’s easy to fall into tunnel vision as a trader but try to remind yourself to step back and look at the bigger picture.  If every day was $3k-5k profit everyone would be day trading.  Success requires a take it in stride mentality, some days you make $1k, other days you lose $1k, as long as you are making more than you lose over the course of months and years, you are successful.  You can’t get bent out of shape when you come up short, just think of it as the cost of doing business.  Having the right attitude is a critical component to successful trading.  To read more about it, check out my reading list here.

Trading and Traveling

Trading and Traveling with Warrior Trading

 

Hey everyone!  I wanted to make a blog post on Trading and Traveling.  As you guys all probably know, I don’t travel much.  I’m not a jet setter flashing dollar bills and a million dollar life style.  That’s just not who I am.  Even though I’ve been very successful, I celebrate that success in my own ways.  I’m a homebody and I’m perfectly content to stay in Vermont with my family and dogs, work in my barn or the gardens, and tinker with projects around the house.  But sometimes there is the need to travel for weddings, or simply to get away.  This winter was pretty dreary in Vermont and I wanted to get away so I decided to fly to California for a week in April.

Traveling means spending money, and for most, taking a paid vacation.  For self employed day traders, there is no such thing as paid vacation time.  That means when we travel we either accept we’re just spending money and not earning money, or we’re trading and traveling.  I have developed a strategy for trading the markets 2hrs a day.  I trade Momentum and Gap and Go setups (we teach these in our Trading Courses).  Making a full-time income working only 2hrs/day when you aren’t traveling is pretty awesome, and it makes it easy to trade on the road.  As long as you can put in your 2hrs/day, you are in great shape.

In my case, even if I wanted to take a vacation, I simply can’t.  I’m running the Warrior Trading chat room and I put that ahead of everything else.  In fact, I have only taken 1 day where I didn’t trade in the last 4 years.  Our 1500+ members expect me to trade the gappers and momo stocks each morning and I couldn’t be happier to do it.  Just because I want to go on vacation doesn’t mean I want the quality of our chat room content to suffer for members. That means I design my travel around trading.

 

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Portable ATM Machine

When I’m trading in my home office I have an 11 monitor, 3 computer trading station.  It’s my work zone, and I spend 12-14hrs/day working there.  Between preparing my watch list, trading the markets, doing mid-day recaps, and then working with students, my days are jam packed.  Clearly I can’t bring my entire trading system with me, so I have to work with a modified command center.  My Mobile Command Center, or Portable ATM Machine, consists of 2 laptops and 2 external monitors.  As you may know, I’m a big fan of using laptops as my trading computers, so these are the same computers I use at my home office.  Two out of my three computers come with me.  This is important because my trading layouts, hot keys, and software is already installed and ready to use.  Trading with an unfamiliar computer is like going into a tennis match with a new racket.  That’s nuts!  John McEnroe wouldn’t do it and neither will I!

 

The Trading Hardware

  1. Two Lenovo Y50 Laptop – Sold State Hardrive, 16GB RAM, 2.4GHz Intel i7.   – Roughly $1499 from Lenovo
  2. Asus USB Portable Monitor 15.6″, less than 1/2 inch thick and weighs only 1.7lbs.  – $149 on Amazon
  3. Logitech Headphones – These are optional, use them for chat room audio and for my music.
  4. Two Ethernet Cords – This is ideal so you can plug into the hotel LAN instead of using wifi, but it’s not always an option.

Carry on suitcase holds both laptops and 2 external monitors, and leaves room for lots of other things too.

 

 

Trading Requires an Internet Connection

Everyone knows you need a good internet connection to trade, but when you’ve been trading from your home office for the last 12 months you get used to the fact that the internet is stable and lightening fast.  That can result in a big surprise when the hotel WiFi can’t stay connected or when they simply don’t have a reliable connection.  (I dealt with this when I was in Costa Rica.  The internet there was horrible and made it almost impossible to trade).  So I planned my trip around going to places that I knew would have good internet.  Napa Valley has great internet, and is a beautiful place, so it’s a win win for me.

When I first arrived in Napa Valley my hotel room has poor signal.  I asked them to move me to a room closer to their main router since they didn’t offer Ethernet ports in the room.  They moved me, and trading has been good.   The download speed is only about 5Mbps, and even though it’s only about 10% as fast as my Internet in Vermont, it’s been good enough for trading.  My preferred broker, Speedtrader, uses very lightweight desktop trading software that isn’t resource intensive.  If I were using Ameritrade’s Think or Swim software, I might have more of an issue.  I have noticed the upload speed for chat room screen share is a little slow, but it hasn’t been bad, and this isn’t an issue most traders would need to worry about.

Take it easy, after all, your on Vacation!

Before trading with real money, make sure you test your connections!  I did this on Monday morning during pre-market session.  I placed orders, cancelled them, just to make sure everything was responding quickly.  Once I finished my equipment and internet check, I was ready to trade.  Monday morning I made a $570 profit on $AMDA, $MNOV, $RXDX, and $LMCA.  Today I locked up $990 on $FBIO, $FELP, and $RPRX.  So I’m already up over $1500 on the week.  I’m trading from 6am California Time thru 9am, and then I can go drive around and enjoy the warm weather.  Even though I’m still working everyday, a 3hr work day is vacation for me, and I’ll take it!

Important words of wisdom, and a reminder to myself, you’re on vacation!  Take it easy.  This is not the week I’ll be taking 10k positions or looking for monster wins.  I’m reducing my position sizes, and I’ll be happy to hit my $500 daily goal.  My $1k target would be nice, but I won’t push it.  The last thing I want to do is have a big loss while I’m on vacation.  I know I’m not going to be able to achieve peak trading performance with 1/4 of my work station, so I won’t try.  I’ll adjust my goals to what is reasonable, make my $500/day, and go enjoy the weather.

I hope this helps anyone else who is needing to travel soon, or thinking about taking a little vacation.

Enjoying some afternoon Rock Climbing

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Napa Valley

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Warrior Trading is the Largest Chat Room for Wall Street Traders

Warrior Trading runs the Largest Chat Room for Wall Street Traders

 

Founded in 2012, Warrior Trading has grown to be the largest premium community of Wall Street Traders.   When I first built this chat room I set out with two simple goals.  The first was to provide a hub where traders could come together to exchange ideas in a safe and moderated environment, and the second was to provide educational content for new traders.  There were already other established day trading chat rooms, but I felt that none provided the type of market education that new traders need in order to be successful.  This was based on my first hand experience of struggling to learn to trade, back in 2010.  I lost over $30,000 making completely avoidable mistakes in my first year of trading.  I know what it’s like to struggle as a beginner trader and to feel like all the odds are against you.

 

Over 80% of our Students are Profitable

I learned lessons the hard way and I wanted to find a way to bring the best quality education to the trading community.  I didn’t want new traders to struggle the way I had.  In 2014  I complied all my knowledge of trading into our Day Trading Course, which has now been taken by hundreds of students.  A cynical person might say I am profiting off traders who are bound to fail.  I’ll counter that argument by pointing them to this Survey of 100 Trading Course Students.  Of those students, 82% are profitably trading the markets, while less than 20% were profitable before taking our classes.  We are helping traders achieve success and live the life they had always wanted.  Financial freedom is obtainable to those who are dedicated, disciplined, and have the aptitude for trading.

Setting a New Standard

Warrior Trading has become known in the trading industry as the premier community for education and a chat room with actionable market ideas.  We have been featured presenters and been recognized by our partners at eSignal, Speedtrader, Trade-Ideas, Benzinga and Lightspeed Financial, to name a few.  In our recent trading webinar, we were impressed to see over 2000 attendees signing in from all across the world.  Warrior Trading has gone global!  This small community I started in 2012 has blossomed.  We take great pride in the success we help students accomplish, and we’re honored so many traders want to become part of our community.

As Warrior Trading continues to grow month over month, we will be working in 2016 to develop new partnerships and bring exciting new tools to traders in our community.  Stay tuned for exciting updates from us!

 

warrior trading chat room

Options Trading FAQ

Swing Trading Options FAQ

For additional information on Options, check out www.investopedia.com, www.cboe.com and our own Options and Swing Trading course.

Terminology:

Option Chain – A list of options contracts used for quoting the options via a list of the available strike prices and expiration’s for the underlying security.

Monthly Options – Expire the the third Friday of each month. (Not all stocks trade options). Most of our options alert use monthly expiration options, unless otherwise stated in the alert.

Weekly Options – Expire every Friday at the close. (Not all stocks that trade options, trade weekly options). Most of our earnings alerts and iron condors use weekly expirations, unless otherwise stated in the alert.

The Greeks (Delta, Theta, Vega, Gamma, Rho) – Greeks are dimensions of risk involved in taking a position in an option (or other derivative). Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Various sophisticated hedging strategies are used to neutralize or decrease the effects of each variable of risk.

IV – implied volatility – Implied volatility is the estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish, when investors believe that the asset’s price will decline over time, and decreases when the market is bullish, when investors believe that the price will rise over time. This is due to the common belief that bearish markets are more risky than bullish markets. Implied volatility is a way of estimating the future fluctuations of a security’s worth based on certain predictive factors.

 

HV – historical volatility – Historical volatility (HV) is the realized volatility of a financial instrument over a given time period. Generally, this measure is calculated by determining the average deviation from theaverage price of a financial instrument in the given time period. Standard deviation is the most common but not the only way to calculate historical volatility. 

 

When do we want to use options?

When markets are trending up or down, when markets are flat, when volatility is high or low and when we want to manage risk and gain leverage! As you can see, there are MANY reasons to learn options trading and MANY scenarios in which you might trade them.

Credit Spread – An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security.

Debit Spread – Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold – both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.

 

What kinds of options do I trade?

Call Options (Bullish) –  call option is an agreement that gives an investor the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period. It may help you to remember that a call option gives you the right to call in, or buy, an asset. You profit on a call when the underlying asset increases in price.

Puts (Bearish) – A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

Spreads:

Bull Call (Bullish, Debit) – Use when IV is low. Seeking an increase in low IV when compared to HV. An example of what a bull call spread we alert might look like if the SPY was trading at $200.00: “BOUGHT SPY APR16 201.5/205.5 bull call spread for a debit of 3.00” You can see in the example below, we buy the closest to the money call strike (201.5) and sell the back call strike (205.5) for protection.

SPY vertical

Bear Call (Bearish, credit) – Use when IV is high. Seeking a decrease in high IV when compared to HV. An example of what a bear put spread we alert might look like if SPY was trading at $200.00: “SOLD SPY APR16 201.5/205.5 bear call spread for a credit of 2.94” You can see in the example below, we sell the closest to the money call strike (201.5) and we buy the back call strike (205.5) for protection.

SPY vertical2

Bull Put (Bullish, credit) – Use when IV is high. Seeking the decrease of high IV when compared to HV. An example of what a bull put spread we alert might look like if the SPY was trading at $206.00 “SOLD SPY APR16 201.5/205.5 bull put spread for a credit of 1.11” You can see in the example below, we sell the closest to the money put strike (205.5) and buy the back put strike (201.5) for protection.

spy3

Bear put (Bearish, debit) – Use when IV is low. Seeking the increase of low IV when compared to HV. An example of what a bear put spread we alert might look like if the SPY was trading at $206.00: “BOUGHT SPY APR16 201.5/205.5 bear put spread for a debit of 3.00” You can see in the example below, we buy the closest to the money put strike (205.5) and sell the back put strike (201.5) for protection.

spy4

Iron Condors (neutral, credit) – Use when IV is high and before a large event like earnings. Seeking the decrease of high IV when compared to HV. When receiving an alert for an iron condor, it will look like “Earnings Iron Condor – ABC Feb20 (weekly) 45/50/60/65 for a credit of $0.50” Breaking that alert down, we see that the Iron Condor is for an earnings play on ABC stock. We know we are using the February 20 WEEKLY expiration. The strike prices are read from left to right (lowest to highest). The first two represent the put spread and the second two represent the call spread. Since these are both credit spreads (Iron Condor = 1 credit/bull put spread and 1 credit/bear call spread), we know that the order of operations for this alert is long/short/short/long. So, buy to open 45p, sell to open 50p, sell to open 60c, buy to open 65c, for a net credit of $0.50.

spy5

What do options chains look like?

Options chains will show you everything from current bid/ask spreads, to the Greeks, to volume and open interest. It is critical that you familiarize yourself with options chains in your broker, if you plan to trade options.

spy6

Options Approval Level

To trade options, you will need to seek approval from your broker. The following are options levels that require separate approval:

Level 1: Covered calls, protective puts (Secured with stock you own)

Level 2: Long calls/puts

Level 3: Spreads (bull call, bear put, bull put, bear call, diagonal, vertical, condors)

Level 4: Uncovered or Naked options (risky business and potential for unlimited risk)

The Anatomy of Making a Trade

The Anatomy of Making a Trade

 

As a fellow trader who mentors new traders and as a moderator in the Warrior Trading chat room, one of the most common questions I get is related to the actual process of planning and making a trade.  They understand the setup they want to trade and they know what it looks like on a still chart after the fact, but they have a hard time planning and initiating a trade beforehand so they never enter or enter a trade at the wrong times.  I believe the answer lies in developing a process to your trading.

As a professional educator and engineer, I firmly believe in the process approach to trading.  I can safely say that this is a big secret to my success.

My trading process looks like this:

  • Morning Routine
  • Develop Watchlist
  • Build a trade plan
  • Initiate the trade according to plan
  • Execute the trade according to plan
  • Reflection

This process is slightly modified when I switch to my reversal scans after the morning session.  Intraday I eliminate my morning routine and my watchlist becomes the reversal scan.

The first question I get when I start presenting this is, “How can THE WAY you do things make all the difference”?  Think about something significant you do.  Then think of how it can best be done. Now, consider how you do it currently. This is a great thought process for traders to have. When you take a trade, you need to ensure that you are focused on the right things prior to entering it as well as during the trade.  Creating a system for this thought process will take away most of the emotional hang-ups traders experience when looking to enter into a trade as well as managing it while they are in it.

The first thing we must do is develop a perspective of what matters.  This will come from education and practice.  Once a trader has the perspective of what matters, they can proceed to identify the specific processes on which to focus. In each of the steps in my process, there are key leverage points that often make the difference between me having a successful trade or an unsuccessful trade.  The key to success in most full time traders and, often not sufficiently focused upon by beginning traders, is the planning process that enables a trader to focus the important elements of a trade which maximizes their chances of success.

So why do I feel that developing a process important in trading? It is important because it describes how a trade will be put together, provides the focus for executing and managing them, and after the trade, provide a tool for reflecting on to determine if there is something that you missed or could improve on for the next time.

 

Trading is not a Hobby, it’s a Full Time Job

I start my trading process by following the same routine when I get up in the morning.  Trading cannot be looked at as a hobby.  You have to approach trading seriously and as such I wake up, go work out, take a shower, get dressed, and eat breakfast prior to firing up my trading station.  I am awake, alert, and motivated when I start building my watchlist.  This morning routine has helped my mental preparation coming into the market tremendously.  So whatever you do, starting the morning out the same way will pay invaluable dividends.   However, rolling out of bed and throwing water on your face 30 minutes prior to open just doesn’t give you enough time to get prepared for the market open.  Sitting at your computer in your pj’s or underwear does not put you in the right mindset to attack the market.  I know because I have experienced all of these scenarios.

My watchlist comes from a specific scan that I use every morning.  I will not look anywhere else because I am confident that the stocks on that scanner will have the best opportunity to setup for me to trade.  I will vet each stock the same way using a checklist I have to determine if it is actually tradeable for me.  My watchlist is built by 9am and I will not add anything to it after that time.  This allows me to watch the tickers on my watchlist for the 30 minutes into the open.  This actually leads into the next step in my process.

During the 30 minutes prior to open I am watching the tickers on my watchlist and developing trade plans for them based on the price action I am seeing.  This helped me with that deer in the headlight look I used to get when the opening bell rung and all of the lights started flashing on my charts.  When the bell rings I’ll have my plans in place written on note cards because it is too easy to forget what you saw on each ticker coming into the open.  What is my plan if it sets up to the long side?  What’s my plan if it sets up to the short side?  What setup do I want to see? What are my profit targets?  Where will my stop be? Is the profit window large enough for the trade to make sense? Just asking yourself questions like these when you are planning your trades will give you a big advantage because you can then go in with a battle plan and stick to it.  If it is written down in my face I can easily refer to it and that eliminates the anxiety that I used to feel when that bell rang.  All I’m doing at the open is looking for my signal and trigger to enter the trade.

 

Once the Bell Rings…

Once the stock sets up, signals, and triggers an entry, I will enter without question, well that is the plan anyway.  Sometimes I may second guess myself, but not often.  I have my profit targets written out on my trade plan and well as the technical level that I am basing my stops on, so after entry I am just concentrating on hitting my marks and booking profit.  There are some that say that knowing when to exit is the hardest part of the trade.  It can be extremely tough to not exit the trade too early if you do not have a pre-set plan. So if you have a plan ahead of time and you stick to it, you will have a better chance of letting your winning trades work and cutting your losses off quickly instead of the other way around.  This will also help with managing your emotions while in the trade.  Last week I talked to our Warrior Pro students about filtering out the noise.  This strategy goes a long way to help do that so that you can focus on the trade.

Once the trade is done I will reflect on how well my plan worked and how well I stuck to what I had written.  Most of the reflection on my trades will come in the evening when I review and recap my trades from the day.   I believe one of the key things forgotten is reflection. “What did I do right?”, “What did I do wrong?”, “Should I have sold earlier?”, etc. are all extremely important for the development of your trading. Just because you made good profits doesn’t mean you are a perfect trader. How you play both sides of the table are extremely important.  Write down or do a video recap of the trade and everything that comes to mind lesson wise. Then, file it away with other past lessons and use them as a reference for the future. Some lessons hit harder than others, but be confident that with time you will only get better. It only takes one time of getting your hand slammed in a door to figure out to be more careful, but may take two or three times to learn to turn on the lights before walking around your house at night.

Why are processes in trading important? They are important because they describe how things are done to prepare for a trade and then provides the focus for executing them.  It helps filter out the emotional social noise giving you a better chance for a more successful winning trade.  It provides you with a tool to go back and reflect on your trades and make you a better trader.   If you focus on the right processes, in the right way, you can design your way to trading success.

 

Ed Martin

AKA: The AverageJoeTrader

Circuit Breaker Halts: Everything you need to know

Circuit Breaker Halts Definition

As a full-time day trader, it’s inevitable that you will get caught in circuit breaker halts from time to time.  That means it’s important to understand why halts happen, what causes them, and how to deal with them.

Any stock in the market can get halted at any time.  The two most common reasons a stock will be halted is Pending News, or for a Volatility Pause.  When a stock is halted it cannot be traded by anyone.  The risk with halts is that when the stock reopens, it can reopen at any price.  There really isn’t much you can do if you get stuck in a halt except wait until trading resume.  A halt pending news can last hours or even longer, while Volatility Pauses are usually 5min, but can be as long as 10min.

 

 

Circuit Breaker Halt Types

Code: LUDP – Volatility Trading Pause: Stocks can also spike up or down and get halted on a volatility halt or circuit breaker.

Code: T1 – News Pending: The company has requested trading of the stock be halted while they release material news.  This can be good or bad.  When the stock reopens, the market will react to the news.  Sometimes stocks that are moving quickly on rumors will get halted while the company comes out and responds to the rumor.  That’s why holding stocks that are moving on rumors can expose you to halt risk.

Code: H10 – SEC has suspended trading in this stock (common among penny stocks and companies suspected of stock promotion or fraud)

This is a 5min halt to pause trading for stocks priced above $3 and that move more than 10% in a 5min period.

Stocks under $3.00 have different circuit breaker rules, and S&P 500 stocks and Indices also have different rules.

Circuit breaker rules are also loser between 9:30-9:45 because that is when peak volatility exists.

When a stock is halted, you cannot trade it, you have to wait.

 

Circuit Breaker Halt: Volatility Pause Code: LUDP

A halt on a Volatility Pause is one of the most common types of circuit breaker halts in the market.  If a stock moves up or down too quickly within a 5min period it can cause an automatic circuit breaker halt that will pause trading for 5min.  This helps smooth volatility in the market and prevent flash crashes.  It forces traders to take a 5min time out, research the stock, news, etc.  Often times if a stock is spiking up and is halted, it will reopen higher.  Inversely, a stock selling off will often open lower.

I have seen examples where a stock spikes up 10% in 2min and gets halted for 5min, reopens and immediately spikes another 10% and gets halted a 2nd time for 5min, reopens and spikes another 10% and gets halted for 5min a third time, reopens, sells off 10%, and gets halted going back down.  This type of extreme volatility is typically the result of breaking news such as FDA announcements, earnings leak, buyout offers, activist investor stakes (Bill Ackman, Carl Icahn, research reports (Citron Research, Muddy Waters Research), etc.  At it’s core, the type of volatility that causes circuit breakers is what all day traders are looking for because it presents a huge amount of potential.  The question is whether you have the skill and expertise to profit from these opportunities.

 

nasdaq-halts

Tier 1 Stocks: All securities in the S&P 500 or the Russell 1000 indexes. In addition, Tier One includes all exchange-traded products that average at least $2 million a day in daily trading. Bands are 5-10% for stocks above $3.00

Tier 2 Stocks: All other national market securities, including rights and warrants, and smaller ETP products. Bands are 10-20% for stocks above $3.

Reference: Nasdaq Trader

 

Circuit Breaker Halt: Pending News Code: T1

Holding a stock that is Halted Pending News can be a little scary.  It means that the company is choosing to release material news in the middle of the trading day, instead of after hours.  In my years or trading I’ve found the most common reason a stock will be halted mid-day Pending News is because the stock was making a huge move on rumors.  Maybe rumors of bankruptcy is driving the stock down, or rumors of a buyout is driving the stock up.  In either case, the company feels they must respond to the rumors.  If they deny the rumor, the stock will often quickly reverse directions.  As a trader you have to understand that stocks spiking on rumors or for no apparent reason are always at risk of getting halted pending news.  It shouldn’t be a surprise if and when it happens.

 

Circuit Breaker Halt: SEC Trading Suspension Code: H10

This one is bad.  If a stock is halted by the SEC it’s typically because it’s a penny stock, OTC stock, and it’s being used by criminals to front load or manipulate the price of the stock.  These stocks can be halted for days or weeks, and often resume trading at a fraction of the price before the halt.  Sometimes they drop as much as 80%.  This is a good reason to use extreme caution when you’re trading penny stocks.

Trading Circuit Breaker Halts can be Profitable!

daily-gains2

 

 

Black Monday (round 2) with 1200 circuit breaker halts

On August 24th 2015, Black Monday Round 2, there were over 1200 circuit breaker halts when the market opened.  It was the most extreme amount of volatility across the entire market I’d ever seen as a trader.   The market tanked over 1000 points causing circuit breakers on the way down, then it experienced such a massive bounce off the lows it caused additional circuit breakers coming back up!  The purpose of these circuit breakers and 5min volatility pauses were to prevent a full market crash.  While the market still dropped 1k points it could have been much worse.  – CNN Money

Warrior Trading Review – Verified Survey Results

The Warrior Trading Course Review

Survey Results are in!

 

 

See what our students are saying about the Warrior Pro Day Trading Course

We have worked with so many students over the years and we pride ourselves on being ranked as one of the best day trading educators by a number of leading financial companies.  We have been featured presenters at many premiere financial institutions, including at Trade-Ideas, eSignal, and Lightspeed Financial.  Our courses range from Intro to Trading, Swing Trading, Options Education, Day Trading, and Scalp Trading.  Our Warrior+, WarriorPro, and Warrior Trading Mentor courses include every class in our line up.

We like to have our students give a Warrior Trading Review because feedback helps us improve our classes! In our Survey of 100 recent Trading Course Students we asked 4 simple questions.  We found that less than 20% of our respondents were profitable before taking our trading courses.  This is to be expected because if they were already profitable they probably wouldn’t need the class.  What is awesome to see is that over 80% of our students replied that they are trading profitably SINCE taking our trading course.  We are successfully teaching our strategies and students are trading them in real-time, and making money.  As many of have you have probably heard, only 1 in 10 traders will be profitable.  This means students in our classes are massively exceeding the average success rate of only 10%.

I believe students who take our course already show a higher likelihood for success simply because they are investing in their education.  By attending classes students are showing their dedication to make this career a success.  Our students are hungry for education and we’re more than happy to provide them with our trading strategies, the stock scanning settings, and the support community learning environment.

 

 

 

We asked our students 4 questions

 

Warrior Trading Review - verified

 

Warrior Trading Review - verified

 

Warrior Trading Review - verified

 

Warrior Trading Review - verified

 

Disclaimer & Disclosures

As per our Terms and Conditions, Warrior Trading may express or utilize testimonials or descriptions of past performance, but such items are not indicative of future results or performance, or any representation, warranty or guaranty that any result will be obtained by you. Your results may differ materially from those expressed or utilized by Warrior Trading due to a number of factors.

Survey from Dec 2015 – April 2016 hosted by Survey Monkey.  Link to PDF Export of the Report.  We left poll open until we received 100 submissions.  Poll was hosted on page with Trading Course Member Access only to prevent false responses.

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