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The Dangers Of Shorting Hot Oil Stocks With Absurd SEC Rules, A Lack Of Discipline & A Tiny Account

Posted by timothysykes on Wed 21st of May, 2008 04:34:42 PM
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That title is just about the worst combo there is and yet I went full steam ahead, shorting 1,000 FPP five minutes after the market open into a spike I thought to be ill-fated. Nearly right away when I was down 20 cents on my position, I knew I’d screwed up. Despite my warning everyone about the dangers of shorting these rocketships before they go red and the fact that I made the exact same mistake just two days ago, I even refused to take a $150 profit, instead wanting more, almost inevitably getting squeezed for a $600 loss.

I guess it’s true what they say, you can’t t each a greedy Jew new tricks.

I explained my rational for breaking the very rulesI created to protect myself the other day—not that its much of an excuse—and today was no different, except FPP was double the price and I got squeezed for double, 50 cent/share as opposed to 25, too. Fitting, right? Again, I was right about the morning pullback after the spike, it just happened $1 higher than my entry!

3days The Dangers Of Shorting Hot Oil Stocks With Absurd SEC Rules, A Lack Of Discipline & A Tiny Account

(Soooooooo much better to go long these things, but here’s another new twist to the problems caused by the SEC’s absurd pattern day trading rule—since you can’t go in and out, in and out, in and out of any 1 stock over one five day period, my specialty is going short and I don’t think these runs can last another 5 days—if I buy for $1-2/share gains, which is all I’d be comfortable doing, I probly wouldn’t be able to short them when they crash. And due to my skillset, I’ll be very comfortable holding these suckers for $3-5/share on the downside. So, forget about me whining about not being able to trade, now I gotta whine about being forced to play these stocks only from the short side!)

But today is just a typical amateur mistake created by me wanting to get back to even for the month (horribly typical trader emotion, now down 4% booo hooo you little bitch), getting too comfortable shorting this supernova pattern (over the past few months, each time shorting after this many days would’ve worked, of course this is why commodity plays are different!!!) and the fact that the spammers like KYUS, FOUR and FORC aren’t collapsing like normal so there’s really nothing else to play.

And that’s the key to avoid making similar mistakes—come in with no expectations. I built it up in my tiny brain that these commodity plays will fall apart and I have to profit from it. Blog post after blog post, I’ve been saying, watch these stocks, today they could/should fall apart when in fact they’ve showed no signs of true weakness whatsoever. It’s a testament to my taking quick losses that after being so wrong so many times in a row now, I’m only down $1,500 or so off my highs.

So, do me a favor, if you must try to profit from these potential quick morning drops—which I don’t recommend—it’s far far far far far better to short a strong stock’s that’s gone slightly negative on the day as you would’ve made $2/share on BWEN, $1/share on HYBR and 50 cents/share on KUN, MMGW and CPSL before some of them bouncing.

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  • The Chad
    Great read Tim... I have to ask, do you reference any of your potential trades against Bollinger Bands?
  • Davey
    Tim, why not do what you said and just sleep till the afternoon after your morining post. Most of your good picks have broken down over multiple days so even if you miss the big breakdown early you can short late afternoon/close and still profit safely over the next few days.
  • jesseb
    Come on Tim, we know you're doing it on purpose to teach us! What's 18k when you know that the first millionaire you make will donate at least that much to you ;)

    I know I would...
  • Dan-O
    Tim, anything else come up on the screener?
  • New site looks fuzzin sweet TIM!
  • eb
    Jesse I actually like that idea of giving Tim a donation! Tim...I know with your help I will become a millionaire and as soon as I do, I fly to New York, treat you to a restaurant of your choice, and make a donation! Ive already become a better trader and I am very very appreciative of your teaching me. The knowledge you share with us is absolutely priceless!
  • this niche is played by morons and morons dont know bolinger bands.

    davey, i would sleep til the afternoon but i got too much work to do!

    jess, not doing it on purpose, just showing all the risks and rewards

    dano, about 50 stocks, blehhhhhhhh

    fous, thanks bud!
  • eb
    Oh Tim...Mets or Yankees?
  • made a few gutsy(stupid!) plays today in my WSSuvivor account.

    short mxc at 51.77 covered at 51.05 470shares gain of $388.4
    short royl at 6.03 covered at 5.71 3500 shares gain of $1120(lucky bastard)

    would have been a nice day for my account but I have CELG,GOOG going long which both got killed. Still up almost 15% since the competition started
  • i dont give a shit about sports
  • eb
    oh ok.
  • jesseb
    I second that lack of shit giving...though...women's volleyball is nice (the fake, non-competitive beach kind with two pieces) :P
  • getshorty
    Just sent my check for funding my TOS acct on overnight Fedex, hope My account is ready to trade before pdo and mxc fall of the cliff.

    WIll keep my IB account as well, that way I can "close a position" without incurring a PDT by taking the opposite side with the other broker and closing both on the next day : )

    Not to do all the time, double transaction cost, but will help me when I am close to my limit, once I break 25k will be no need.
  • awesome shorty, u better have used me as your referral, it'll cut into my stupid losses
  • ShootSteel
    Thanks for the insight
  • sonid
    its tough to just sit and wait but I am guessing that's what being more discipline is all about. We have to see where these energy plays are headed because right now I have no clue. no signs either way. anyone else?
  • getshorty
    I used you, Tim, they ask you "how you heard about us" and there is a drop list with a zillion names, found yours and clicked.

    NOW...... Where are MY Timbucks?
  • codyhof
    haha shorty... just overnighted my funding check to TOS as well. The race is on!
  • MTXR
    I am gonna need to whore myself out to some fatties to get some money to trade with... sigh...
  • cool thanks shorty, timbucks will be here soon, coding them is a bitch

    check out GBR, changed their name to "Concept Energy" now up 35% afterhours LOL
  • MTXR
    wow! craziness on the GBR.
  • Fantom
    Tim, SEC rules cap off us small timers, but you have more than 25k. Why would you limit yourself?
  • i limit myself to bring attention to this problem, nobody else with any experience/exposure will do it cuz to them the little guys don't matter...trust e, it's not cuz i enjoy it down here, missing plenty of great intraday patterns to focus on 1-2, such BS, gotta change it!
  • Fantom
  • Fantom
    Your right Tim, thanks. With out see you on Wall Street Warriors, I wouldn't have known about short selling.

    One day, I too will be a Jedi Knight.
  • Fantom
    Tim, FCCY or somebody let me know what you think.
  • Fantom
    Tim I'm doing some stock screening and would it be profitable to short the stocks that have negative year to date?
    I'm just trying to find an edge.
  • Fantom
    Take MRCY for instance.
  • Wow I didn't know we get timbucks for opening a tos account? I guess I'll have to open another one.
  • schmuck
    getshorty, im using IB as well...any problems getting stocks to short?
  • Eric T
    Any hunches when FPP and MXC will crash? They are waaaay overpriced! My TOS account is locked and loaded ready to get out of my long and into a short position for both stocks.
  • timevalue
    Tim,

    I can see you've been very frustrated at your breaking your cardinal rule of not shorting until the afternoon (preferably when a stock is red), have you explored a little more deeply as to why this has happened a few times?
    There was an interview once of one of the world's greatest online poker players who always tries to ask himself "why" he did what he did when he makes a mistake. Doing something like this during quiet moments after the fact can require some painful soul-searching, though....
    BTW, I am too scared to short any oil/energy stocks right now. I'm all in cash because the rising tide of oil price fundamentals may very well be working against technical traders taking short positions. This is not to say some good gains can be scalped from trash stocks in the industry, but it will be tougher...
    Why? Because the world may possibly be at the Hubbert's Peak of Oil Production right now..

    http://en.wikipedia.org/wiki/Peak_oil

    Still a faithful and loyal reader of your site, you have too much to offer everybody to let a few mistakes get you down.
  • Eric T
    What indicators will you guys be looking at to determine if MXC and FPP will being its fall? Volume?
  • jesseb
    That's a good question - I'd like to know the answer as well.

    Personally I think we play FPP (at least) like Wes did yesterday and today.

    Wait until morning rolls around, it's getting action after hours and I'm sure it will spike in the morning. Have a set number (a reasonable one) and sell it when you get to that...especially if it's hovering.

    I myself will be happy with a $1 gain in the morning...I'm not going to get greedy on it.
  • fantom, i dont try to find an edge, soo many stocks out there, i just try to keep it simple and say, wait a minute, this company is crap, it shouldnt be up so much. thats it. then its just trying to stay disciplined and stick to patterns that have worked
  • Matt
    Lack of a regular sleep pattern will mess you in lots of different subtle ways. Jesse Livermore always kept regular hours, got to bed by 10pm, and took vacations in Florida and the Jersey shore when he got too stressed.
  • as i posted before, i' happy for wes, but no way in hell do u continue buying these stocks each morning, soon they'll dump and have monster reversals.

    what i do to look for those reversals is a wall of sellers, where it looks like they can't just keep going higher as if the prices are a warm knife going through butter. reversals are much much easier to spot in the afternoon, but are quicker/more dramatic in the morning
  • yah def, lack of sleep is a part o f it, but JL never tried creating a blogging empire!
  • Getshorty
    Schmuck, I called Interactive brokers the day before CNEX collapsed in order to reserve shares to short, they told me they don't do that, then, when CNEX collapsed I saw the whole thing, tried to short like crazy and didn't got any while bloggers here were laughing there way to the bank. That trade would have made me anywhere between 1-2 k.

    Really pissed me off, tried again yesterday to reserve shares of PDO, MXC and FPP, same shit, I didn't wanted to short those today, but tried putting high sell limits and got the message that there were no shares available, even after I confirmed last night there were several thousands available of PDO.

    Hope TOS has much more availability, no sense in focusing on Tim's shorting strategy and then don't be anle to short on the best moment.

    Would keep IB account open so I can cancel out positions with both brokers and avoid PDT, once I have enough money will kiss IB goodbye.

    THey told
  • Evan
    TOS is great for many reasons- but customer service and available shares to short in the a.m. have got to be the top two! I also have a TD Ameritrade Apex account, but even that won't give me the ability to short the number of stocks I've been able to with TOS. For anyone new, TOS is Thinkorswim.com I gave Tim the referral about two months ago. To date, I've been able to short and profit on CNEX and KYUS. I'm still holding my $38 MXC short from yesterday- not too worried, it'll tank past that eventually. Tim's right though, you have to have patience and capital to hold through this mess.
  • monkiman
    wow, I thought while I was vacationing, I was missing out on PDO, MXC, etc. etc. well, I see that I didn't miss much... and while traveling, I was feeling the sting of how expensive gass is now...

    I will start trading again tomorrow.... will eye MXC, PDO.. THis site looks great
  • Mike_13th
    Tim you said:
    "check out GBR, changed their name to
  • good job mike, too many comments these days to keep track of...too many plays too
  • schmuck
    getshorty...i have the same experience with u with IB. they are real cheap to use transaction costs-wise, but their service is crap! i have a few trader friends who recommends me TOS as well, think i will sign up once i gathered enough funds.
  • Eric T
    Anyone experiencing lag when trying to exit/sell a position with TOS? Couple days ago I placed a sell order but it took like 5 minutes to go through!
  • Tony
    How far up is this oil going? Oil hitting $135 after hour, probably will reach $140 tomorrow. And all these crap FPP, PDO, ROYL, MXC etc. are again on the move upward in afterhour market! MXC still not available anywhere to reserve, but that one freaks me out, $15 up in a heartbeat! PDO and FPP probably are more comfortable to short, yet they also moved 35-40% for the past few days.
  • Fantom
    Tim anything wrong with shorting on the Nasdaq?
  • Fantom
    ASFI is down trending, what do you think, anybody?
  • Added a post regarding SINO might be worth a watch

    http://www.investorslive.com/blog/
  • Fantom
    Wake up guys, money never sleeps. I'm the one that has to go to work in the morning.

    http://money.cnn.com/news/newsfeeds/articles/ap...
  • Mike_13th
    AOG CNR BPG not for the faint of heart but are in play oil/gas stocks under a buck. Long or short,choose your poison.

    ROSE GPOR SSN TGC may be among this sectors latest runs,besides the obvious ones everyone here on this site is talking about.

    Come on guys bring some fresh ideas/stocks onto this site.
    Tim is only a one man band and he is sleep deprived :)
  • thanks mike, good watchlist, def. post here anytime!

    for the guy who shorted ROYL, not sure if thats a great entry, it has a habit of gapping and tanked pretty quickly into the close, could be a nice morning squeeze to short into though
  • codyhof
    get some sleep Tim... wanna see you play this shit tomorrow hokay

    And for the guy shorting ROYL if it makes you sleep any better it did close on somewhat of a shooting star pattern as well as its first red day in the last 5.

    I just think these oil plays really need to start making significant breakdowns before it is safe to short. Picking the top is gonna be nearly impossible as we have seen today and yesterday
  • agreed, but no time for sleep, got a big day for TIMtv planning, 4 articles, catching up on forums now that i can actually post, setting up affiliate program, answering about 200 emails (sorry for the delay!) and write friggin newsletter that hasnt gone out in 2 months!
  • getshorty
    SHORT INTEREST

    HI Tim, Been chequing the short interest on MXC, scary shit.

    As of April 30, shares shorted were, 834 779, for an average daily volume of 2650, meaning that at that volume it would take 315 days for the shorts to cover, I guess by now those shorts have covered and were the gasoline that ignited the 2 500 000 shares traded during the last two weeks.

    Do you use this short interest indicator in some way? I know it is old info. but I think it may be a good confirmation of an oncoming supernova (lots of shorts at small prices = panic covering)

    Let me know your take, and let me have my Timbucks
  • getshorty
    Bloomberg:

    Wrong-Way Bets

    Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

    The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.

    My question is, if oil traders are getting squeezed, how much further can crappy oil short sellers get squeezed, I guess not too much, we are approaching the edge of the cliff....
  • getshorty
    I meant, how much can crappy oil companiy's short-sellers can get squeezed, however, if open interest just fell by 8%.... may a serious bigger squeeze can still be in the cards.


    Will the crap stay afloat, don't miss the next episode of your favorite soap opera "The Pumped and the Dumped"
  • John
    Investorslive's link (post #49 above) mentioned extremely bullish GTE, and the chart pattern of this one reminds me MNCS (Tim mentioned on his article/video), which has a very bullish chart pattern until one fine day in early Oct 2007!
    http://stockcharts.com/h-sc/ui?c=MNCS,uu[h,a]wa...
  • John
    The chart link above truncated for some reason, here is another one...look at weekly view.
    http://stockcharts.com/charts/gallery.html?mncs
  • Tim, you are The Master and I but a lowly peon-serf-peasant-scum-bag who cannot come to a sound judgment about HUSA and ROYL because I have not watched your DVD yet nor have I read your book; oh will you help me, my kind Lord?

    HUSA chart:

    http://finance.google.com/finance?q=husa&hl=en

    ROYL chart:

    http://finance.google.com/finance?q=roy
  • Adam
    I've got PDO & ROYL reserved. will go long on SSN today
  • 5holeSAVE
    Yo who's looking at MCRL this morning? Still easy to borrow... dropping to mid Feb support?
    whaddya think TIM?
  • MCRL is too gradual, i dont have capital to spare to even consider it

    MXC short interest from last month isnt a factor here, we already KNOW its a squeeze and short squeezes can last much longer than expected, especially commodities as opposed to pump and dumps (which is why if i was disciplined, i'd stick to my "no earnings no commodities" rule

    Again, commodities vs. pump and dumps, GTE is a real company, MNCS is not. big difference.

    ben, husa is too gradual for me to care, royl will be a good short soon
  • thanks buddy
  • Ryan
    FPP is not available to short today!
    MXC is not available to short today!
    ROYL and PDO are available to short, reserve early!
  • Ryan
    Ooops, PDO is no longer available to short!!
  • codyhof
    Watch SOLF. Dropping in premarket down 1$ already.
  • Ryan
    WTF?

    Status Action Quantity Symbol Type Price Act. Price Expiration Reported
    Canceled Sell Short 100 MXC Limit 65.00 -- 05/22/08 08:51:22 05/22/08
    Order No. 3911708125 Mexco Energy Corp Com Entered:08:51:18 05/22/08 Reuse
    Order Canceled: We're sorry, but this stock is not available to sell short.



    Canceled Sell Short 100 PDO Limit 39.00 -- 05/22/08 08:40:47 05/22/08
    Order No. 3911690318 Pyramid Oil Co Com Entered:08:40:42 05/22/08 Reuse
    Order Canceled: We're sorry, but this stock is not available to sell short.



    Canceled Sell Short 100 FPP Limit 11.75 -- 05/22/08 08:37:07 05/22/08
    Order No. 3911679396 Fieldpoint Petroleum Corp Com Entered:08:37:03 05/22/08 Reuse
    Order Canceled: We're sorry, but this stock is not available to sell short.



    Canceled Sell Short 100 FPP Limit 11.75 -- 05/22/08 08:30:38 05/22/08
    Order No. 3911646978 Fieldpoint Petroleum Corp Com Entered:08:30:35 05/22/08 Reuse
    Order Canceled: We're sorry, but this stock is not available to sell short.
  • Ryan
    Codyhof, shares of this security (SOLF) are currently not available to short sell.
  • Daniel
    anyone looking at CRED
  • uh dude u gotta reserve shares first...homework assignment, read through the last 500 blog posts or so, then u might be prepared for this game
  • Bob (VC)
    Ryan- that's from Ameritrade, right?
  • banana
    Mikey_13th

    I agree with adding to the forum, but what's your basic screening requirement? 500,000 volume? Beta #? Recently in the news?

    I think it would be best to throw out good stocks to short, but if we throw out random stocks then there's a lot to filter.

    How about giving some ideas on how to screen for stocks instead of simply saying "add to the forum".

    I'm just trying to be more practical about adding to the forum.

    thanks
  • Mike_13th
    banana,
    I hate to bust on Tims bubble,and not trying to, but dude you don't have to wait for the perfect set-up imo.
    I eat because I trade,in other words I can't WAIT 2 weeks for the "perfect"( there is no such thing anyway,this is a form of gambling,yeah you can put the odds in "your favor" but they still go wrong,you gotta admit that ).
    In other words I TRADE FOR A LIVING, it's not some account worth $2k and a quick get rich "hobby"
    I was questioned yesterday on this site when I said a breach of $7 on SSN was a short signal.
    Today it sits at 4.90
    I know my stocks and have traded under $10 stocks for 2 decades both long and short,

    You screen for stocks BY SCREENING FOR ADR(10) and moves over OR under 15% in the last 2 days.
    You screen for stocks ( a scan really not a filter ) that have run AT LEAST 10% 10 times in the last 100 days combined with ADR(30)over 8%.
    Do yourself a favor and go read this forum thread:
    http://forums.stockfetcher.com/sfforums/?q=view...

    13th
  • mike there's a COMPLETE difference between my strategy and trading for a living...this strategy is ideal for those who want to trade part time or those limited by SEC rules in how many trades they can make....these people CAN'T trade every high probability setup so its right for them to wait for ideal trades. u gotta understand that
  • Mike_13th
    Tim,
    I respect and do admire what you've do/have done BUT I still feel I'm right.
    There are folks out there that this isn't a hobby or a part time thing to them.
    You are not reaching out to those folks.
    I guess this isn't your objective and ok I understand that.
    But I think you gotta admit, I think there is little difference between a 90% chance of reward or a 60% chance.
    The market is a gamble no matter how you look at it and waiting for that what you think is a "90% chance" every 2 weeks is really stretching it.

    Anyway peace
    13th
  • correct i can only teach what i know...i tried the 60% setups, but never made much $ that way. whatever works for ya, u just gotta go for it...would you ever consider writing a guest post about your strategy/thoughts, i'd love to feature it
  • Кстати это все придумали где-то лет 10 назад .:
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Who Is Timothy Sykes And Why Should I Care?

See Tim's full bio HERE. Tim turned a few thousand dollars into a few million by taking small gains time after time on hundreds of volatile penny stocks, discovering that his trading strategy, while consistently successful, works best for those with smaller accounts.

Determined to teach others this PennyStocking trading strategy (learn more HERE), he went back to his original $12,415 roots (already $58,000+ even though the stock market has crashed) to show everyone how to turn thousands into millions, even while having a life (somewhat) and making plenty of mistakes. Currently he is the #1 ranked trader out of 25,000+ on Covestor)

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Hard work, Determination and Know How.

Hard work to learn how the greatly misunderstood niche of penny stocks provides opportunities every now and then on which you should pounce.

Determination to seek those probable profits out and know how in order to actually profit from them.

Long story short, wait for stocks that are extremely volatile - for whatever reason - and then aim to take small profits (between 10 and 50% within a few hours, days or weeks) here and there, either from betting on higher or lower prices (yes, you can make $ betting on lower prices, it's called Shortstocking (learn more HERE).

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TIM Trades

View All
Date Stock Buy Sell Net
Nov 19 AENY $2.80 $3.02 $1148
Nov 18 NLST $4.16 $4.40 $947
Nov 18 IMGG $1.42 $1.64 $2094
Nov 17 NLST $5.04 $5.59 $2195
Nov 13 VRMLQ $21.50 $22.97 $2901
Nov 11 EONC $2.61 $2.80 $687
Nov 10 EONC $2.74 $3.36 $9784
Nov 6 QXM $4.31 $4.80 $1936
Nov 4 COT $8.66 $8.88 $642
Nov 4 QXM $4.61 $4.89 $822
Oct 30 DDRX $25.70 $26.53 $812
Oct 29 CTDC $4.00 $4.42 $781
Oct 26 AWSL $3.24 $4.10 $2516
Oct 23 RODM $5.27 $5.23 $301
Oct 22 AMLM $2.69 $2.97 $820
Oct 22 USEG $6.12 $6.09 $85
Oct 20 CBOU $8.93 $9.06 $243
Oct 16 VRMLQ $16.79 $18.65 $2773
Oct 13 YONG $11.05 $11.66 $1202
Oct 13 NPHC $0.59 $0.71 $583
Oct 12 IMGG $0.60 $0.70 $682
Oct 9 ZAGG $5.50 $6.10 $2380
Oct 7 GVBP $0.03 $0.27 $702
Oct 1 NPHC $0.70 $0.85 $1482

Total: $98,094 (681%)