Video seven was basically an extension to video six, which was heavy on shorting. Only this time Tim covered a little more than just "pump & dumps". He also talked about shorting stocks that aren't blatant pumps.
For starters Tim explained that swing trades can have more risk at first but can also open you up to larger gains, this is especially true for short swings because of the difficulty of location shares to short, often times in order to find shares you'll need to get in early and that can put you in the red at first.
At one point he spoke about a stock he shorted that had been halted in Canada before it was halted in the US market. I'm going to look into the Canadian market and see if their is a list of halted stocks that gets updated regularly. I'm curios if that would be a tricky way of finding short plays before they go red in the US... Not sure, just curious.
A few things to consider when you are looking to short a promoted stock:
- Watch for paid promoters, promoters on social networks
- Pumps can last days, weeks, even months before crashing
- Wait for the technical breaks on the chart.
- Take a look at the promotional budget (its in the disclaimers usually with $ amount written in words and not in numerical such as $1000 vs one thousand dollars)
- Watch for the volume and price action to start its fade
- Try and look at past pumps by the promoter, look for patterns
- Try to get the first red day
- watch for afternoon breakdowns
Tim has said this many times over the years, "It's okay to be wrong if you cut losses quickly and learn from your mistakes"
We should be not just learning what the patterns on the charts look like, but understand why that pattern is taking place.
You don't have to trade everyday. I know that for me because of the small account I'll be starting with I can afford to trade everyday. I plan on trading money on the best plays that I can find and others that I'm not as confident on but want to use as learning tools, I'll be paper trading.
Tim then went on to explain that you can also short non-pump plays, such as higher priced stocks that are over extended, getting hit by negative pr, etc. The percents you can net will be lower, but it can be much more predictable than the rare blatant pump and dump. I'm thinking the gains you should be aiming for realistically are 3% to 8%.
Watch for exposes, they spread quickly and can push price action.
January Effect / Santa Claus Rally
Often times companies that are looking at a financial loss will sell off stocks near the end of the year for the tax benefits. This causes some stocks to become deflated and beaten down. The result is that in January you may see stocks spiking for no apparent reason. This can also take place early in December in what is call a Santa Claus Rally.
Tim will short in morning panics, sometimes holding a stock overnight with the ticker closes on red. He also like to short into afternoon fades which can be much more predictable but with lesser percentages.
Lastly, Tim said to follow your rules. Sometimes you may need to cover and try again, but always cut your losses.