Why You Should Use the Sykes Sliding Scale
Dear Penny Stock Millionaire,
The number of questions I get from students focused on one indicator is crazy. The Sykes Sliding Scale is my personal system for pre-grading a trade. It helps me avoid stupid trades and modulate my position size. It allows me to make trading work for me, based on my schedule.
But here’s the thing…
The Sykes Sliding Scale has seven indicators. You can’t focus on only one aspect of trading and expect to do well. Even if you win on a single trade … or several trades … you’ll learn the wrong lessons. In the end, it will come back to haunt you.
In this post, I’ll share the seven indicators of the Sykes Sliding Scale, so keep reading.
Let’s get right to…
Trading Questions from Students
The first question has to do with watching and trading the markets after-hours…
“You often comment on market action and news after-hours. Do you watch the markets after-hours as a regular part of your process? Will it benefit me as a newbie to do so?”
For me, I think it’s good. But everyone’s different. Some people have a lot of time. They can watch the markets non-stop. Others can only watch a little. It’s up to you and your schedule.
Like the rest of trading, you have to figure out what works best for you. It takes time.
As for trading…
I wouldn’t look to trade premarket or after-hours. It’s a lot less liquid. I don’t think it’s bad to learn, but understand it’s a lot more manipulated. The rules are different and it’s a lot scarier. Keep reading. The Sykes Sliding Scale can help when it comes to trading around your personal schedule.
“How do you determine position size? Some traders use a set dollar amount, but your position sizes vary a lot.”
It’s all in my “Trader Checklist” and “Trader Checklist Part Deux” DVDs (more on those in a bit). I use the Sykes Sliding Scale to determine if, when, and how much. If it’s a great setup with breaking news, I’ll try to get in quick.
Here’s a good example…
Kandi Technologies Group Inc. (NASDAQ: KNDI)
KNDI spiked midday on July 29. The company announced it was introducing its fully electric vehicle into the U.S. market. The EV market has been hot, and this was big breaking news.
Check out the KNDI chart from July 29:
KNDI chart: July 29 intraday, 1-minute candle — courtesy of StocksToTrade.com
I tried to get 10,000 shares at $5.25. (Right after the first halt on the chart.) That would’ve been a big position. And I would’ve flipped it for a dollar a share profit in the $6.20s if I had gotten executed before the halt. A $10,000 profit would’ve been one of my biggest trades in a while.
My order didn’t get filled. I missed it by a few cents because it was moving so fast.
So KNDI had breaking news and the EV sector is hot. I didn’t know it would triple and I didn’t want to chase. Again, I would’ve been happy with a profit of $1 per share. But I attempted a bigger position size because it’s a hot sector with breaking news. It was a good setup.
Now contrast that with a different play…
Bravada International Ltd (OTCPK: BRAV)
I took a small position on BRAV overnight on July 30. It was a first green day, up 100%. The company operates several e-commerce sites. Categories include women’s fashion, medical face masks, and now pet supplies.
Bravada recently released a financial statement and shareholder update for the first time in years.
Here’s the BRAV three-month chart:
BRAV chart: 3-month, daily candle — courtesy of StocksToTrade.com
My thesis was that BRAV should go up. It should gap up. In the past, it’s gapped up even if it failed the second day.
So I put in roughly $4,000. Why not take a big position like I tried to do with KNDI? Because it’s a sub-penny stock. I hate sub-penny stocks. But it was a solid first green day OTC mask play with news and new filings on OTCMarkets.com.
It’s not my ideal trade. I’d never put $20,000 or $50,000 into this trade. You never know with sub-penny stocks.
After 20+ years of trading, I make these decisions fast. Sometimes in a split second. When people ask why or how, I almost always direct them to my “Trader Checklist Part Deux” DVD.
You should watch it. But today I’ll let you in on a little part of it. I want you to at least know which seven indicators I consider before a trade…
What Is the Sykes Sliding Scale?
When I started teaching I was looking for a simple way to explain my thought process going into a trade. Why do I choose a stock? What’s the pattern? And like the question above, how do I determine position size?
The answer: you must P.R.E.P.A.R.E. I won’t go into full details in this post. But I’ll share the seven indicators with you and what they mean.
Check it out…
What You Need to Know to P.R.E.P.A.R.E for a Trade
The key to using the Sykes Sliding Scale is to prepare ahead of time. You might also find it useful to review after a trade — especially on a loss. You might see something you missed that explains why.
Again, this is something I do without thinking about it. If you want to get good at it, you’ll have to practice. There’s no ‘easy’ button.
P Is for Pattern and Price
What’s the pattern? What’s the price in relation to the pattern? Too many newbies buy anything that’s spiking. Don’t even get me started on short sellers. They want to short anything that’s up. It’s crazy.
You should look for a clear pattern. At first, you’ll have to test and tweak. That’s trading.
R Is for Risk/Reward
What’s the risk/reward ratio? I don’t like to trade something unless there’s potential for a decent gain. I’m not looking to risk five cents a share for a possible 10-cent gain. That 1:2 risk/reward isn’t enough. I’m looking for 1:3 or 1:4. (Or better.)
E Is for Ease of Entry and Exit
How easily can you get in and out of your position? What’s your position size in relation to the average trading volume of the stock? What’s your position size in relation to the current trading volume of the stock? How fast is the stock moving?
You don’t want to get stuck in an illiquid stock. I learned my lesson the hard way on the biggest loss of my career. Also, with fast-moving or choppy stocks, you might have to account for slippage.
P Is for Past Performance and History of Spiking
You should always check to see if a stock has a history of spiking. A lot of stocks come into play again and again. If I’ve traded a stock in the past I remember. But I still check. For example, I’d never traded BRAV before. I checked to see if it has a history of gapping up.
I’m a glorified history teacher. You MUST study stock market history if you want long-term success in trading. That includes individual stocks.
A Is for At What Time and Personal Schedule
This is SO important. You need to make trading fit your lifestyle. For me, I love to travel. I’m not traveling now because of what’s happening in the world. But normally I’m not sitting in front of the screen all day watching the markets.
For you, it might be something different. If you’re still working a full-time job, then you have to respect that. If you have an appointment at 10 a.m. then you probably shouldn’t get into a trade at 9:59…
Also, time of day matters. I rarely trade premarket or after hours. I don’t like trading midday. For me, the best time to trade is in the power hours.
R Is for Reason or Catalyst
Why is the stock moving? Again, I avoid buying random spikers. Does that mean I never buy a stock without an obvious catalyst? No. Sometimes I do. But that affects my position size. It affects how long I’m willing to hold.
Both KNDI and BRAV had catalysts I liked and understood. Again, you need to study to know what news has the potential to move stocks.
E Is for Environment of the Market
Three out of four stocks follow the overall market. Is it a bull market or bear market? Is there some big news about jobs? Is it earnings season? What’s the market sentiment?
You need to understand what’s going on. It might not directly affect the stock you want to trade but it will help inform your decision.
How to Learn the Sykes Sliding Scale In-Depth
Now you know my seven indicators, but I’ve barely scratched the surface. To really get it and put it into practice you need more information. It’s a sliding scale … meaning every trade is different.
The Complete Penny Stock Course
Read “The Complete Penny Stock Course” by my student Jamil. It’s still basic when it comes to the Sykes Sliding Scale, but it puts it into context. You’ll learn my favorite patterns and the catalysts I like. It’s a must-read book with answers to the most frequently asked questions. (You’ll find the Sykes Sliding Scale in Chapter II:11 Sykes Sliding Scale — page 235.)
Trading Lesson of the Week
This goes along with using the Sykes Sliding Scale. In July, I made roughly $70,000 compared to $300,000 in June. The market hasn’t been slow. There are still a crazy number of plays but fewer go-to patterns.
In June, if a play had news it would spike a little, and then there’d be a second and third wave of spiking. So you could buy in the first wave and sell in the second.
But now a lot of spikers are getting stopped in their tracks. Here’s an example…
Zion Oil & Gas, Inc. (NASDAQ: ZN)
ZN spiked a little late in the day on July 30. Considering it from the Sykes Sliding Scale perspective…
- It’s a former supernova.
- The company announced approval to drill a well in Israel.
- It was spiking in the last hour of trading.
Here’s the ZN July 30 intraday chart:
ZN chart: July 30 intraday, 1-minute candle — courtesy of StocksToTrade.com
I thought it could keep spiking. And if I’d timed it perfectly when it dropped from 27 cents to 23 cents, I could have played the bounce to 29 cents.
Recently, second waves have been weak. Yes, ZN spiked more after-hours. Again, I don’t like trading after-hours. It doesn’t fit my personal schedule. See how the Sykes Sliding Scale informs all my trades?
Here’s another example…
Taoping Inc. (NASDAQ: TAOP)
TAOP ran on July 30 after announcing an upgrade to its smart cloud platform. It didn’t just have a second wave, it had a third and a fourth wave. It ran all the way from the $2s to the $14s in the morning.
Check out the TAOP intraday chart from July 30:
TAOP chart: July 30 intraday, 1-minute candle — courtesy of StocksToTrade.com
So the trading lesson of the week is modulation. Again, it’s not really a slower market. We’re seeing fewer multiple waves from a lot of stocks. Instead, the strength is in only a few stocks. That’s how the market has changed.
You MUST adapt to the market.
Millionaire Mentor Market Wrap
The Sykes Sliding Scale is the result of years of trading experience. It was me taking a step back and asking myself, “What am I thinking and why?”
And 10 years later, it still works for me. So use it. Again, I’m not always right. And I still have to follow my rules — especially rule #1: cut losses quickly.
What do you think of the Sykes Sliding Scale and preparing your trades ahead of time?
Talk to you tomorrow,
Editor, Penny Stock Millionaires