Beware Of Free Stock Pick Services

Today I want to take some time to write a quick blog post on a phenomenon that has existed for decades but has amplified lately with the internet and cheap advertising.

I’m talking about those so-called free stock pick services. Also known as free stock alerts, penny stock alerts, free stock pickers etc.

These guys usually set up simple websites and ask you to enter your email address and sometimes phone number so you can receive free stock picks and alerts for cheap stocks that supposedly multiply in value in days.

Many people fall for this type of easy scam because it’s free. They think that his service has nothing to gain by lying to them because it’s free, they don’t make any revenue from that.

Well if that’s really the case then ask yourself this questions: why would the person behind all this go through the effort of set up this service and then pay money to Google or Facebook to advertise it to you if they have absolutely nothing to gain from it.

No, it is not out of the kindness of their hearts.

These are actually good old stock pumpers. If you don’t know what stock pumping is then take a look at this Investopedia article.

Basically, these people (they usually operate in small groups) set up hundreds of phony sites like that with the purpose of collecting addresses and phone numbers of as many people as possible.

They will then find a low-float and easily manipulated stock, buy thousands of shares for themselves and then blast emails and text messages to their huge databases of traders urging them to buy this stock.

Then hundreds of thousands of traders buy this low float stock, artificially causing the price to rise. That’s the pumping part.

Then the people who started this whole thing will sell their shares after the price has risen high enough, booking a nice easy profit.

Only AFTER they sell will they then issue or a sell alert to their thousands of subscribers. The dumping part. This will cause a bloodbath of thousands of traders trying to sell their shares as the price comes crashing down from all these shares being sold within minutes.

It’s basically just a classic by-the-book case of stock pumping. The majority of traders who follow these types of free stock picks will lose and they will likely lose big.

Avoid them like the plague.

Focus on developing your own strategy or follow stock picks from reputable, paid services that have no incentive to manipulate stock prices in order to make money.

– Jacob


My Golden Rules For Trading Reversals

I love reversals. They are some of the most profitable setups in trading and they are extremely powerful when you can spot and trade the right ones.

Nothing in the universe can go on forever. Everything that rises must eventually fall (although the opposite is not always true).

A stock that has been going higher, higher, higher as if a jetpack is attached to its back will eventually start losing steam and begin the slow and sometimes fast and dramatic descend back for a pullback or a sell-off.

If you can spot that sweet spot of a reversal soon enough then you are in for a treat.

90% of my very best traders over the last three decades have been reversal trades. It is my bread and butter.

With all this reversal trading I have learned some important rules through some tough trial and error ( a lot of error).

I call them my golden rules of reversal trading and I will briefly explain them to you in this post. Here we go.

1. Stocks fall faster than they rise

That is a fact that has been statistically proven time and time again. People feel fear much more than they feel joy. When a stock falls it signals fear. It creates a cascading effect.

The stock reaches a high price so people sell to take profit so the stock falls a little. Other traders see the stock falling so they start selling as well. The stock falls more, faster and faster. More traders see this and sell as well, the stock falls much faster and so on.

Look how long it took AEP to rise and how quickly it fell.

In the beginning, traders sold to book profits but later on other trader sold to prevent a loss or to avoid an even larger loss.

Lesson here: you are better off shorting a reversal to the downside because the move will be faster and more dramatic.

2. The S/R level is more important the first couple of times it is tested

S/R means Support/Resistance.

The S/R level that is tested more than 2 times becomes worthless for me. That’s because we can see that traders have tried breaking it several times in the past so the chances that they will succeed this time around are much higher.

I like to trade only the first two times the price comes to an important S/R level. The third and subsequent times I skip it, always.

The second test of the resistance was successful, the third was not.

3. If an uptrend reaches a peak on low volume then this is a strong sign of reversal

When you see the volume fizzling out as the stock makes new highs it’s about the strongest signal you can get that buying is cooling down and sellers will start winning very soon.

Trading is an auction. If one side starts giving up then naturally the other side will start winning.

If buyers stop buying then sellers will drive the price lower as they try to find buyers to sell to at lower prices.

AMZN was losing volume and buying interest as the price made new highs. Look what happened next!

The opposite is not true however for downtrends because they can continue falling on low volume. I’m generally more comfortable shorting stocks on highs that I am buying stocks on lows.

Downtrending stocks are low energy, on both sides. They are unpredictable, boring and dangerous.

4. If a set up doesn’t work exit right away

When you are in a trade you should constantly ask yourself this question. If were to buy this stock right now, would the current set up meet my criteria?

If the answer is no then there is no reason for you to still be in this trade. Just because you are in it already is no reason for you to continue being in it if the situation has gotten unfavorable. It’s time to take your loss and exit before things get out of hand.

These are my four golden rules for reversal trading. I like to keep things simple, as you may know, dear reader so I tried to do that here too. No sense blabbing on about them. They are clear enough. I hope you will remember them when you trade reversals.

– Jaco