Abridged Life Story Pt. 2 / Swing Trade Success and Becoming a Bag Holder

Throughout the Spring and Summer of 2010, I managed to make money trading, although I probably shouldn’t have because I had no plan in place (read: I should have lost it all). I read every article and book that I could get my hands on about the MACD, moving averages, stochastics, RSI, technicals, fundamentals (but mainly technicals), and I had convinced myself that I was decently competent at trading. I became a big fan of the MACD and the slow stochastics indicators — I would pick a stock and watch how these indicators would seem to coincide with chart movements (although I had a sneaking suspicion at the time that most of the indicators were bullshit). I traded a few stocks using the indicators, such as Corning ($GLW), American Airlines ($AA), and British Petroleum ($BP), and seemed to have success with all of them. I used the MACD, along with the daily chart and news, to trade $BP rather perfectly. When the oil started flowing unabatedly, I looked to pick up some shares on the cheap into the free-fall. I went long into the plummet when the MACD crossed over and indicated bullish. I sold a few days or weeks later into the bounce for a small profit.

Freefallin'

Freefallin’

…okay this wasn’t the exact set-up that I was looking at at the time, but I didn’t have the presence of mind back then to take a screenshot of my charts. I used this strategy a few times with Corning ($GLW), but the chart isn’t interesting enough to post here. Point being, I used dumb luck to make a little money and lured myself into a false sense of competency. In the fall of 2010, I moved to LA and continued my work in the film business, so I had much less time to trade actively. I turned once again to swing trading and value-finding, for the convenience of time. This is around the time that I started to notice certain stocks were going parabolic and I wanted to figure out why — I just assumed (perhaps rightly so), that the investing public was a stupid and panicky lot, prone to bandwagon tendencies. It was MDBX’s absurdly meteoric rise that brought me back into the pennystock fold.

Screen Shot 2015-02-03 at 7.21.07 PM

From rags to riches

From my desk I watched $MDBX climb from $3.14 / share to $215 / share overnight — I knew nothing about promotions at the time, and I was astonished at it’s rise, assuming that the public just really loved weed stocks. This got my stock juices flowing and brought me right back into the fold. I began reading Marketwatch.com daily once again, and began re-examining pennystock services — namely Peter Leeds, to whom I had previously subscribed with success, and Tim Sykes, whom I had been following for about 5 years, ever since my college friend turned me on to the show Wall Street Warriors. 

Per my newfound enthusiasm, I began researching and found two stocks that interested me — Seven Arts Entertainment ($SAPX), and Groupon ($GRPN). At the time it never entered my mind that a stock could be a paid promotion. I trusted the sanctity of market press releases, and figured that there was some sort of regulatory body that would protect the investing pubic from misinformation, lies and deceit. Rather, lies and deceit never entered my mind — they occupied no place in my market lexicon. Boy was I wrong — all because of one word — “disclaimer”. I remembered, from reading Tim Sykes’ blog many years prior, that the media would often manipulate buying due to unjust hype, but I never figured that press releases could be purposely manipulated as to spur buying for the purposes of insiders off-loading shares to the public. That’s exactly what happened, and I was one of those buyers…in hindsight Groupon ($GRPN) was a better buy.

...perhaps a better dip buy than $SAPX

…perhaps a better dip buy than $SAPX

It made perfect sense to me — here was a company, in my industry (in fact I could basically see their headquarters from my building), with a long, proven track record, doing a certain amount of revenue per quarter, with a beaten down chart that was sure to rebound with all the projects in their pipeline. What I didn’t know was what effect float, shares outstanding, and market cap had on a stock. I couldn’t figure out why the chart was getting hammered with all the new projects in development, however it suddenly made sense — In late January $SAPX came out with a press release blaming shorts for the recent downtown in the stock price. That was it! Shorts were to blame! I suddenly had a reason to buy shares, now that there was a clear party culpable, and it came right from the CEO’s mouth, so it must have been an honest, truthful statement.

What I didn’t know was that this type of press release, blaming shorts for the sudden plummet in stock price, was a classic promotion trick that scumbag-CEOs, running garbage, promo companies, would release in order to attempt to squeeze shorts who were riding the piece of shit into oblivion. Anyway, at that time I represented the naive, American stock buyer who was doing due diligence (or so I thought), and playing the odds (or so I thought), by buying a stock that was tremendously undervalued (or so I thought). I also approached SAPX with the typical, sucker mindset that promoters subsist on — if I bought enough of these stocks, odds were good that at least one would hit big and make me enough money to offset the losses on the others, and then some…after-all I just witnessed $MDBX go from $3 to $215 overnight, and I extrapolated that I only needed one $MDBX to make me rich, and so therefore it was worth buying the lotto tickets. (As an aside: in hindsight, just writing this makes me cringe).

Baghold fail.

Baghold fail.

What actually happened was that promoters were paid to issue bullshit PRs and send emails, in an attempt to pump up the stock. My biggest win ever was right around the corner, however, and now I was hell-bent on a path to learn more about penny stocks. Juxtaposing the $SAPX loserdom, I had purchased some shares of the Tesla IPO ($TSLA) around $18 / share, back in 2010, with the thesis being to hold for a swing into good sales numbers. Three years later my thesis played out perfectly as the company reported stronger than anticipated earnings and sales, and squeezed the massive amount of dumb shorts who were sitting stubbornly in this, sky-rocketing the shares.

TSLA

decent swing thesis

I ended up making around $30,000 total off this trade, on two different transactions (one in June and one in July). This gain also coincided with two events — Tim Sykes’ Lamborghini road trip, and my departure from my job. I had decided that enough was enough — I was going to live out my lifelong fantasy of becoming a full-time, pennystock day trader, and I was going to do so by any means necessary. I knew I needed guidance, and something about Tim Sykes’ ability to make several thousand in a few minutes, trading from a Lamborghini at a rest-stop, propelled me down the path of subscribing to his service. I signed up for his “Pennystock Silver” service, and after a month of seeing that his strategy worked, I applied for his Millionaire Challenge and was accepted. Good timing since his lessons on “earnings winners”, helped me secure that second $15,000 in Tesla ($TSLA) profits.

…more on that to come.

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