Tim Sykes now appears to be advising against momentum. He seems to be recommending a different strategy altogether. How confusing.
Much of his website and many of his august pronouncements center around buying momentum. Or so I had thought. Perhaps I had misread what he was saying. Perhaps chasing “supernova” is not the name of his game after all. I realize that this master of penny stock trading uses a number of different patterns, but now I am really confused. Perhaps if I spent many thousands of dollars buying his products and listening in on his chatroom I would be enlightened. Perhaps I just need to study more and listen to his 600 videos and watch his countless DVDs. Clearly the fault is mine.
Anyway here is what Mr Sykes is now saying about momentum:
Every morning, newbies fire up their scanners and chase the largest percent gainer of the day. Chasing stocks up 50%–100% isn’t a strategy — that’s gambling. Instead…
Wait for panic. What does panic look like? Here’s a classic example from last year…
Perhaps momentum does not work after all? But never fear because Sykes has another winner! Buy the dips! Crush it!
Here is how Mr Sykes “crushes it!” by “Buying the Dips”
What You Need to Know About the Morning Panic Pattern
Here are a few critical elements of the morning panic pattern:
- First, the stock must be up a lot — at least 50%. The higher the stock runs, the bigger the panic. I don’t want to try to dip buy a stock that’s only up 20% over a few days. There’s not enough meat on the bone. Wait until they’re extended.
- Don’t randomly buy a stock that’s down huge in the morning. Companies have bad news all the time. I want a stock that’s a recent runner, not a company with a negative catalyst.
- Don’t rush into the panic. Stocks can panic much further than you think. I’ve seen stocks drop over 90% in a day. Wait until the stock begins to test support levels and buyers step in on level 2. Here’s a great live example.
- Cut losses quickly — it’s my #1 rule for a reason. It’s difficult to nail the bottom of panic, so sometimes I enter too early. If that happens, cut the loss and try again. Holding the loss further into the panic could result in a huge loss.
Alright, it’s time. Here’s the stock I perfectly called the morning panic on…
Decision Diagnostics Corp. (OTCPK: DECN)
I was much relieved to be told that buying momentum was for newbies and mere gambling. At least so far as penny stocks is concerned. Because my back testing seemed to indicate that it is a disastrous policy. The great majority of trades lost money and losses exceeded winners in percentages terms. A real lose lose situation. Thank heavens Mr Sykes has now confirmed my findings.
I changed my code around a bit. I filtered out 100 of the biggest penny stock gainers over the past month and bought during the next day if the price during the day was below the previous day’s close by x%. The advantage of back testing is that you can of course change all the variables. The biggest advantage of all is that it is quantitative and deterministic: it does not rely on human interpretation of patterns.
I was sure I had now nailed it. Excited that I was going to “crush it!” as Sykes and his acolytes have been doing for years.
I called the harbor master in Monte Carlo and booked a berth for my super yacht. I ordered a helicopter and booked a pilot. I put down a deposit on a Lambourgini.
Sadly, I must have got the message all wrong again. Or perhaps I am just crap at coding. Happily the guys at Quantconnectcame to my rescue and improved my code for me. The Lean back testing engine is very complex and I was grateful for their guidance and improvements.
It is with great regret, that according to my back tests, this strategy seems equally disastrous to buying momentum. Clearly I have got something badly wrong yet again. I have misinterpreted the Master. I have mis-coded his strategy. Mea Culpa! Timmay and his mates are crushing it and I’m flailing around in stygian gloom and ignorance.
Same old problem. More losing trades than winners and in percentage terms losers lost more than winners gained. My code just has to be wrong.
I clearly need to study harder if I want to “crush it” like Timmay and his boys!