Sub 10c medium term trading strategy

[skyQuake]

Here are the three updated charts.

PAA is the new entry (Setup 11). Not off to the best start with that reversal on the entry day.

View attachment 55079

Hey pav, my chart for PAA looks a bit different. Looks like some ticks are missing from your chart?

 

[pavilion103]

One more with a wider stop this time.

 

[Boggo]

That popped its head up in my weekly speccy scan last Fri. It had a nice run when it last broke 10c.

(click to expand)

 

[curiost]

I've been following this thread with much interest, but I have a (possibly silly) question. How are the setups entered? At some predefined amount above the price on the day of high volume? What is the advantage of this if there is an uptrend, over just buying on the day of high volume?

On the first read of this thread I thought that each setup was an entry, but then your trade spreadsheet only has a few entries. I'm relatively new to trading so please be nice

 

[tech/a]

One more with a wider stop this time.


View attachment 55129

That popped its head up in my weekly speccy scan last Fri. It had a nice run when it last broke 10c.

(click to expand)

There is a real art to these and if you do it correctly you can have very busy days trading.
Chart 14 PAV
Your entry is too late and spread to wide---you need to be on the first break of the high of the previous bar.(In my view)
BOGGO your chart.
I know its just a weekly scan and your not trying to time these.
I will point out that the stock has had over 100% rise already.
Difficult to find EARLY prospects and the trading in and out to get set can be frenetic but worth the effort to learn.

You need LIVE data and a good platform.
You need to hit them hard when running Pyramid and take at least 50% off when they pause.
Sell when they reverse hard and hit again if they second run---often HARDER.

HINT 1
There will be a REASON WHY these types of stock take off.
HINT 2
Often that reason wont become apparent until a day or two after the impulse move takes off.
So getting set in anticipation is wise.
HINT 3
GAPS are your friend learn how to play them.
HINT 4
Become an instant decision maker --- procrastination will kill you!
HINT 5
You are trading emotion---if you understand that---you will be 100% smarter than your competition (Those you are benefiting from that are also trading the small cap).

There is more but need to keep some to myself!
I'm competing against you!.

 

[burglar]

... HINT 3
GAPS are your friend learn how to play them. ...

Agree wholeheartedly.
But do not understand HINT 3 in its entirety.
Perhaps you could elaborate (if it doesn't kill your positive expectancy)

 

[pavilion103]

Obviously a lot for me to learn.

Obviously I'm not trading these in the absolute best way possible.

I want to learn that.

Having said that, this strategy I am proposing is not about getting in and out of stocks. It is not about maximising each profit with active trade management. It is about a medium term strategy, which aims to hold a number of these stocks, hopefully eliminate risk (stop to BE) and let them run.

Setup 14 - Yes it has moved. Yes I would have wanted to be on already. Yes it may not be a great entry - initial stop too wide. But I don't know what it can do. Will I maximise profit on this one position if it takes off - NO. Will I still do ok - YES.

The unintentional benefit of the wider initial stop is it allows me to take a smaller position size, thus hold more stocks in my portfolio. If (big if) if happened to reach the heights of 40c again, it would still be almost $5,000 profit from $400 risk. Even at 25c it would be around $2,500. Or it could be break even. Or it could be a $400 (1R loss).

Tech - I have recorded everything you've told me in here and in emails and will study it diligently.

In the meantime, I still believe this strategy can be very profitable, even if it has not been absolutely maximised.

I am aiming for a passive approach with as little ongoing effort as possible.

 

[craft]

I am aiming for a passive approach with as little ongoing effort as possible.

Then start looking for a tail wind.

I’m guessing that if you owned all these sub 10c stocks and coughed up all the capital they consume they as a whole would cost you money not make you a return. On the whole the underlying performance from the basket of business creates a head wind.

The size of the companies causes illiquid conditions when excitement wanes – hence slippage, another head wind.

The size of the companies makes them prone to manipulation and abnormal moves – additional offside calls and more potential slippage – more head wind.

Trading costs – always a headwind.

Can you trade well enough to make head way into these head winds? Even if you can trade that well why not trade with a tail wind?

Small risk – high payoff is the attraction. Same attraction with Lotto, but it’s probably easier to see the drain on the pool before winnings are allocated.

I would have thought the best expectancies in this area would be taking small bites against those buying and hoping to win big.

What should the aim of the professional trader be – to get lucky or to get on with business? Are you the casino or are you the patron.

If ever you should have your trading thesis fully validated before putting money down it should be in this highly negative sum environment.

Just some random thoughts – haven’t read the whole thread so sorry if they are not applicable or you have already covered/considered.

 

[pavilion103]

Thanks for the thoughts.

I appreciate the thoughts of everyone, I am a very teachable and open person and take it all on board without offense. I like good feedback. Otherwise my posting in a public forum is a waste if my time.

At the same time I couldn't care any less if people think this approach will fail. That means nothing to me. I've studied, I've researched, I believe I am playing the probabilities.

Time will be the most important judge of this system.

 

[McLovin]

Then start looking for a tail wind.

I’m guessing that if you owned all these sub 10c stocks and coughed up all the capital they consume they as a whole would cost you money not make you a return. On the whole the underlying performance from the basket of business creates a head wind.

I've only been briefly following this thread, but the idea that you could hold these over a medium time frame, without the underlying business at least becoming profitable and still make money seems like wishful thinking. From my own anecdotal observations, these stocks can go up 100% based on an announcement of not much substance (GoConnect for example). Invariably, reading the other forum you'll see plenty of true believers pushing the stock up, eventually they get bored and move on to the next big thing.

If you want something passive, trading pico-cap capital killers isn't the way to do it.

 

[pavilion103]

My thinking is that I'd need very few to really hit it big. Most will do nothing.

In the meantime I will be reducing risk as I go.

We'll see!

 

[peter2]

Pav: Your idea has merit and is similar to many portfolio strategies which rely on a few large results from many trades to produce the return. I doubt that this strategy is low activity as you'll have to place/cancel many conditional orders while waiting for your entries. Of course this can be done in your own time when the market is closed.

Your chart setups remind me of the box theory. The boxes provide a reasonable entry mechanism and define an initial SL which allows you to control your risk. You can place your buy stop (conditional order to buy the new high) well before it triggers. If the price falls and closes below the box bottom you can cancel the order and wait for another price/vol spike box. As you are targeting the sub 10c stock universe you will probably have to place and then cancel many orders before starting a trade. Buying new highs will avoid many of the "pump and dump" price/volume spikes which are very common in this section of the market.

This is the AHZ line chart and shows four boxes (pump and dumps) that did not trigger an entry. An entry was triggered in the 5th box when price broke through the top. Note: The sixth box also triggered an entry even though price did close below the box. No entry if you had cancelled your buy stop order though. Will you pyramid if subsequent box tops are broken?

I think the hardest part for you might be the trade management after the entry. We know that AHZ has hit 0.15 which would be +500% from an entry ~0.03. A good result but how many good results do you need to make up for all the losses? The swings in these stocks are very volatile and if you are distracted by work or life you may miss opportunities to lock in some profit. How will you react when seeing a +200% result slip back to break-even? How will it affect your long term outcome?

The big Q is, can you create a big enough edge that will make it worth your time and effort?

 

[burglar]

Then start looking for a tail wind ...

If, by tail wind, you mean the direction of the market, I agree entirely.

In a bull market, I win.
Then the market turns against me.
I lose it all again, and then some!

The next bull comes around.
I have to make up the shortfall first.

Richard Farleigh says there are times when it is best to be out of the markets.
As he and I don't fly in the same social circles, I need to figure it out for myself.

I am hoping that I have learnt sufficient to be nimble.
I feel that now is the right time to be getting in! (dunno? gut-feel!)

 

[pavilion103]

I will endeavor to get back to all posts soon. I am out tonight.

I am coming to the realisaton that I like some of my setups more than others.

There are some very clear ones that I have seen work well and that I really like.
There are others that I am hitting and hoping with a little more.

I will elaborate more maybe tomorrow night or on the weekend and get people's thoughts.

Definitely the box stuff mentioned in one of the posts is a part of this.

 

[CanOz]

Seems like you could use a filter of some kind? Some of the symbols have volume so low it must be difficult to determine any goings on....Is there a fundamental filter you could add? Just thinking out loud really...

Is this price action caused by the punters as McLovin is eluding to? Is it a result of prior accumulation?

Interesting thread none the less.

 

[McLovin]

If, by tail wind, you mean the direction of the market, I agree entirely.

I think craft means to have the underlying business as your tailwind, not the market. So if you have a company that is reporting increasing revenue/profit etc it's much easier to be passive because the business is doing the heavy lifting for you. You put the work in upfront and then you check back every 6 months to make sure it's still doing what it should do. That's passive, imo.

Take MNW, revenue of <$1m but a mc of ~$130m. It won't take a lot to see that sp halve or worse.

Full disclosure: I know sweet FA about TA.

 

[tech/a]

I think craft means to have the underlying business as your tailwind, not the market. So if you have a company that is reporting increasing revenue/profit etc it's much easier to be passive because the business is doing the heavy lifting for you. You put the work in upfront and then you check back every 6 months to make sure it's still doing what it should do. That's passive, imo.

Take MNW, revenue of <$1m but a mc of ~$130m. It won't take a lot to see that sp halve or worse.

Full disclosure: I know sweet FA about TA.

True
But after the MYOB announcement it rose 20 x it's price.
Fundamental announcement ( low pressure system )
Crowd psychology pushed ( cyclone )
All recorded on a chart.

 

[burglar]

True
But after the MYOB announcement it rose 20 x it's price.
Fundamental announcement ( low pressure system )
Crowd psychology pushed ( cyclone )
All recorded on a chart.

20/08/13: MYOB Signs Five Year Agreement with Mint Wireless

 

[McLovin]

True
But after the MYOB announcement it rose 20 x it's price.
Fundamental announcement ( low pressure system )
Crowd psychology pushed ( cyclone )
All recorded on a chart.

No doubt and if you can trade it then that's great. But the fact that the price rose 20x based on a three sentence announcement tells you the kind of buyers you're dealing with; traders and dreamers. It's just hard to see how that could become a passive investment. You might get lucky once or twice, but you'd need some pretty big wins to cover all the inevitable losses.

 

[pavilion103]

Yeh. I'm not thinking completely passive.

If it goes from 5c to 20c or 30c. I'll be looking to trail stops. Sometimes close, sometimes some room depending on behavior. I won't be letting it run and giving back all the profits.

My point is I won't be actively trying to get out of each one after a big up day and will risk giving back a portion of profit for the chance of allowing a bigger move.

Happy for more input with this as we go. Don't think I'm just holding these, never moving my stop and hoping one takes off and giving up on all the others. I'm just allowing them more room to move than I would with the momentum strategy.