After watching 100+ hours of videos from Tim Sykes, Tim Grittani, Superman, DVDs, lessons, etc. along with reading both Tim's book and the Pennystocking book these past few weeks, things are starting to click. There was something that Tim kept saying over and over again that finally hit me the other day.

"Trading is about process"

I manage process control for a living. All processes have variables and controls in place based on the conditions of those variables. In a nutshell, trading consistently involves developing a process with clearly defined controls and staying disciplined to follow the process. Once the process has been followed and outcome data collected, adjustments can be made based on mistakes, issues, etc. This is the basis of continued process improvement.

In the case of trading, there are a lot of variables however, there are only 3 basic outcomes of every trade. It can go up, down, or sideways. I understand there are definitely varying degrees of those outcomes but I like the simplicity for the sake of following rules. Too much grey area and the rules become too difficult to follow or too easy to dismiss.

Most of the variables in a stock come in the form of past performance and statistics. These variables can be studied and can be treated like a check list. Here is the stock investigation process I've put in place based on my studies.

The purpose of the stock investigation is to weed out the "noise" and focus on the best possible setups.

STOCK INVESTIGATION

1.1 Check Yahoo Finance for news articles on a stock. Look for good news such as new products, contract wins, good earnings.

 

1.1.1   If there is bad news, ignore the stock.

1.1.2  If there is no news or good news, continue investigating on Twitter, etc. and move on to next step.

1.2   Check Yahoo Finance stock statistics, look at Float and Shares Outstanding

1.2.1  If the float is <20M, it is a low float stock and has a good chance of spiking and short squeezing.

1.2.2  If the float is >20M that is OK but it may be more choppy depending on the volume

1.2.3 If there is a big gap between Shares Outstanding and Float then there is a good chance of dilution. Watch for fading.

1.3   Check recent SEC filings from the last month on OTC Markets.

1.3.1  Double check shares outstanding vs Yahoo Finance to see if there has been dilution recently.

1.3.2 Check for business updates and future looking statements on outlook. Look for positive outlook.

1.3.3  If after checking all news sources, there is no catalyst. Ignore the stock.

1.4 Check history of stock looking for spikes, support, and resistance. Draw all support and resistance lines on the chart for the long term (daily chart) and short term.

1.4.1  If there is no history of spiking, ignore with the exception of hot sectors.

1.4.2  If the history is a bag holder (crow) chart or has a “bad sushi” gap down, ignore the stock with the exception of hot sectors.

1.5 If the entire history checks out, move on to developing a trade plan.

Once everything checks out, it is time to put together a trade plan. This process is a guide for how to enter and exit positions. Of course, the specifics are position size and exact entry price will vary based on the price action. It is also important to note that there needs to be liquidity or high volume before entering a position. Here is my process for developing and following a trade plan.

The purpose of the Trade Plan is to set forth rules in which to follow to reduce risk/loss.

Breakouts

1.1  Determine breakout level(s) and price at each level. These are the ideal entry points.

1.1.1  Review past breakouts to see what the typical breakout amount has been. Use the historic breakouts and the next breakout level to determine the reward amount.

1.1.2  Use the breakout level as the risk amount. Expect the breakout to jump more than .01 before being a confirmed breakout.

1.2  If the stock breaks out as expected, begin selling off position into strength

1.3  If the stock fails, sell immediately.

1.4   If the stock holds above risk level, hold for a few minutes. If no action, get out and wait for positive action.

Panics / Dips

1.5   Determine support level(s) and price at each level. These are the ideal entry points.

1.5.1  Review past panics and dips to see how much the bounce has been historically or if it typically bounces. The history will determine the reward level.

1.5.2  Use the support level as the risk amount. Expect the support level to hold and show red/green reversal before jumping in.

1.6  If the stock bounces as expected, begin selling off position into strength, sell out at green/red action.

1.7 If the stock does not bounce, sell immediately.

1.8 If stock holds at support level, hold for a few minutes. If no action, get out and wait for positive action.

Morning Spikes / News Spikes

1.9 Determine support and resistance levels as these will determine risk/reward.

1.10  For morning spikes, watch volume at the market open and price action.

1.10.1  If a morning spike is green, jump in. Sell into strength if it goes up. Sell out if it does not gain strength within a minute.

1.10.2  If a morning volume spike goes red, wait for a panic and follow the panic rules.

1.11  If a news article causes a pre-market spike, let it build for 2 – 3 minutes to see if it holds on the way up.

1.11.1  If the stock continues to hold volume and gains after 2 – 3 minutes, jump in and treat like morning spike.

1.11.2  If the stock spikes for 1 minutes and stops, stay away.

 

This is my process and I'm sure it will need refining over time. I'm not recommending that anyone use this exact process as every trader may have their own. I hope that this post possibly helps others in developing their trading process as well.

Onc