Saturday, December 31, 2016

2016 Highlights Part 1: Making Big Changes

2016 was a big year for me in many ways.  I stopped being cheap and spent money to add several tools to my arsenal that have helped me immensely.  I changed brokers after 3 good years at SpeedTrader.  I suffered the biggest loss of my trading career and I responded with one of the best stretches of my trading career immediately right after.  I will break up this blog into 2 parts (discussing the big loss and recovery in Part 2) so it won't look like one huge blob of words.  

Of course it's human nature to be hesitant to spend our hard-earned money on certain things at times due to skepticism whether your money would be going into something worthwhile, but we must understand that trading, like any other business, has start up costs.   Also like any other business, the more you invest in it, the better position you'll put yourself in to succeed as you will increase the advantage over the other people who lack the proper tools and equipment.  I see lots of people that set themselves up for failure in trading before they even place a single trade.  They trade with a tiny 13" laptop, or a slow, inconsistent internet connection, a really bad broker with a poor platform, and so on.  I would know, I used to be one of these people even until this year.  Now after making the leap and spending some money to invest in my trading, I've seen my success substantially increase by virtue of just upgrading my tools because they help put me in winning situations more often.

After a discussion with @MarketOmega, I decided to make the leap and spend money on a better scanner, Trade-Ideas, and a live streaming news service with a squawk feature, Benzinga Pro.  I had been already a profitable trader up to this point so naturally I was stubborn and thought to myself, "why do I need to spend more money, what I have is already good enough, isn't it?"  I had previously used DASTopList as my gap scanner which worked well but they lacked a powerful scanner that helped find the midday plays.  Ultimately, I decided to give it a shot upon realizing I would react late to various alerts pretty consistently such as the Citron Resesarch short at alerts at the time, which were a pretty lucrative plays.  @MarketOmega told me that using these tools allowed him to be a step ahead of everyone else so realizing that I was always late and that Trade-Ideas and Benzinga Pro costed a combined $130 a month or so (and also a tax write off), I'd figure it was worth a try. 

The results were instantly felt and I was forced to eat the proverbial humble pie for being so stubborn and cheap for not wanting to pay the $130 a month for such essential tools.  The alerts from Benzinga Pro were extremely quick and they were also good for alerted other things as well such as insider buys/sells, option sweeps, filings, and just general news.  It took me awhile to configure Trade-Ideas perfectly but that's a testament to how many features it has.  But I was able to develop a solid gap scanner and also a solid momentum scanner which has immensely helped me pick out the best plays especially when there are multiple possible plays, Trade-Ideas helps me pick the one that's getting the most attention so I know what to trade (Trade-Ideas settings video will released on YouTube soon).  Within a few weeks I easily was able to general profits that paid the subscription fee several times over, reinforcing the idea that they were both definitely worth the investment.  But how ludicrous was my thought process that I was so frugal to the point where I wouldn't spend $130 on something that would help me easily make a lot more than that?  Yeah....

The other major change I made in 2016 was probably the biggest change in my trading career.  I left SpeedTrader in August after 3 years for Centerpoint Securities as my new broker.  I had mulled switching for over a year but once again I was hesitant because I knew my fees would increase and again I let my cheapness take over which led me to not make the switch and as a result I missed out on so many opportunities that I deeply regret not switching a lot earlier.  I even had my good buddy, Rob (@planeteyes), repeatedly try to convince me to switch and yet I was still too stubborn and was afraid of fees (My bad, Rob, Big Macs on me when you visit LA).

Centerpoint Securities definitely took my game to the next level.  If you guys follow me on twitter (@madazfootballr), you can see that my P/L increased greatly right after I made the switch and that is no coincidence.  Before I would not have borrows at the most crucial times and it would mess up my mindset as I would get frustrated that I wasn't making the profits that other people that had the borrows were making and I would, at times, force longs to try to make it up.  Of course, forcing longs on stocks that are obvious shorts are not the most ideal plays and subsequently, I paid the price for it, figuratively and literally.  How ironic is that?  I refused to switch to Centerpoint because I wanted to cheap out on the fees but instead I would take losses playing inferior setups due to lack of borrows.  In hindsight, it was silly and I can laugh about it now, but I'm glad I made the switch and now I've set myself up in a more much commanding position to succeed. 

Generally speaking with regards to these changes I made, yes they cost money but to reiterate my point, trading is a business.  It's no different than starting any company where you need to invest in equipment, employees, resources, etc...  If you're trading on a slow computer, make an investment to get a new faster one, if you're trading on one small 17" 720p screen, get 4 1080p screens (they're like 80 bucks now, I post deals occasionally on my twitter feed), if you're trading on a shitty internet connection, go get the fastest one!  Spend a little now or lose a lot later.  You get what I mean....

I was stupid to not see this despite being in my 5th year of trading.  I limited my potential.  Despite doing well already, so to speak, I could have done even better had I realized this sooner.  

Moral of the story: don't be cheap, invest in your trading, the results will speak for itself.

Part 2 to come....

If you're interested in Trade-Ideas, click and enter MADAZ15 as the Promo Code for 15% Off!

If you're interested in opening an account with Centerpoint, tweet at me on twitter @madaznfootballr or email me 

Friday, November 11, 2016

My Best Single Profit Day Off of Just Scalps in over 18 Months!

The stock gods have responded to my prayers! As you guys know, I've been going pretty crazy from the action, or rather INaction in the market and nearly had to check into a mental institution many times to check on my sanity.  But today was a day that reminded me why I chose to trade for a living. Making loads of money in very little time while I'm sitting on my ass in the comfort of my home in my underwear.  How many careers can you think of where you can do this? Hell even if you were a low-end athlete you still have to put in a lot more hours of work than this not to mention risk getting seriously injured.  I feel truly blessed.

Unfortunately, since I was so focused on trading i wasn't able to record any live footage so I'm just going to write this blog post posting my game plan and thought process in making these trades so that way you guys can extract something from this.

As you guys know I love longs.  Why? Because...
  1. More volume, we have tons of traders speculating on both sides, buyers and sellers (compared to slow short days where it's basically mostly shorts) The dollar volume will be higher which means more liquidity which means you can fill more size.
  2. Bigger moves.  Even if you're strictly a short seller, wouldn't you want to short these POS at higher prices?
  3. Action that lasts all day as opposed to just the first few minutes.  When the stock stays in play for the entire day or even multiple days, we have opportunities all day.  On the slow days where the only plays are the quick pop and drop shorts, you got only one shot at it and if you miss it you're eating big macs for dinner that day...
  4. NO NEED TO SPEND AN ARM AND A LEG ON BORROW FEES!!!  Since the best plays are longs, you don't need to spend on shorts needlessly.  Duh.

I was able to find PTCT off of the Trade-Ideas gap scanner. 

Based off the Premarket support and resistance I decided the game plan was:

·         Go Long against 10
·         Go Short medium size against 11.3-11.5 and bigger size against 12.5.

The stock washed to 10 so I decided to go long about 20,000 shares with a 10.4ish average.  However I missed my sell at 11 as I didn't get filled and ended up selling on the 2nd candle on the way down minimizing my gains to just $2,500 as I didn't want to take a chance that the top was in and the start of the dump was coming. 

Upon seeing 2 nasty upside wicks in a row, I decided to switch biases to short against the top of the wicks around 10.5-10.6 for a 10 washout.  I shorted 20,000 shares with about a 10.4 average and the stock did drop to 10.1 but eventually reversed and I stopped out on the VWAP cross for a -$3,300 loss.

Then I decided to switch back to long once I saw that lower highs were being made and VWAP was reclaimed with a hidden bid prop refusing to go away.  I went long with about a 10.5 average against 10.4 which was where the bottom of the wick of the lower high candle was plus where the bid prop seemed to be, 20,000 shares again and this time I made sure I got the sell in and sold around 11.1 for a massive win of almost $12,000. 

So just 24 minutes into the day, I was up about $11,000, which was already considered an epic day. 

But I wasn't done.   

DRYS initially would have been my focus had PTCT not had the most volume at the open as I'd figure it would get an SSR bounce if the MMs did the textbook washout to trigger SSR and then rip it on the shorts.  However, I didn't expect that they'd be able to rip it all the way over yesterday's highs.  The shorts were clearly fucked here at this point, slap on the halt for good measure to make them even more anxious and we have ourselves a play. 

The plan for this was simple:
  • Long any washout off the halt resume against 15 (previous HOD) for a massive squeeze towards 20

 Very similar set up to my KONE video, albeit that was at the open.  If you haven't seen that video watch here: 

DRYS opened and ripped to 17.32.  Shorts were in deep shit here, if the next dip held any price higher than 15.  The stock had halted at 16.06 which I watched for a possible stall area to load.  I decided to load up half size in the 16s with the thought that I'd load up full size if it dropped to 15.  I eventually only filled 7,000 shares in the mid 16s and get a sick rip selling near top tick after selling some stalls in the mid 18.7s.   I filled most of it at 18.6 and slammed the rest in the low to mid 18s, banking over $12,000 on this trade in just 5 minutes!  Now we're at the 27 minute mark into the day and I'm up nearly $23,000, which is already a personal best in terms of a start to a day!

But NO...I STILL was NOT done. 

Our good, but not forgotten friend FNMA, a stock that has been so kind to me in the past.  A stock that helped provide the funds for me to purchase my beloved whip, the 370Z.  It wanted in on the action.

I was watching FNMA as it ramped to new high after new high, but I couldn't chase as that's against my rules.  I needed a dip to get in or I was simply just going to wait for the dump.  At around 10:20AM EST, I started to lick my chops.  I haven't traded an OTC in awhile and although I realized the volume wasn't as epic as the good ol' days, I knew I could shake some money out of this piggy bank off the bounce.

If you want to know what I mean by the Good Ol' Days, watch this video: 

The plan here was:
  • Go Long medium size against 2.75-2.8 first support level  from the intraday chart
  • Go Long Bigger Size at 2.6 (previous day's HOD)
  • Go Long even Bigger Size at 2.4 (major resistance level from previous day)

Unfortunately the stock didn't dump to 2.4 or 2.6, so I just took a small trade 25,000 shares at 2.82 average and sold it at 2.96.  Didn't want to overextend myself and risk ruining my day so went for the small win.  Adding $3,600 or so more to my already crazy day.

What an epic day.  Never had to hold any positions for more than a couple minutes either.  Nail and bail, baby.

So there you have it guys.  

How to make $26,000/hr in your underwear sitting on your ass at home.  If there's a better and more efficient way to make this much money in this little time, please let me know.  ;)


Monday, June 6, 2016

Check Out My Guest Blog Post on the SpeedTrader Blog!

I want to thank the guys at SpeedTrader for inviting me to author a guest blog post on their website. It's my take on the idea that is frequently talked about by many traders: why 90% of traders fail and what I do to ensure that I'm in the 10% that succeed.

Check it out below!

Monday, March 14, 2016

Madaz's 2016 Adjusted Trading Rules in These Current Market Conditions

Madaz's 2016 Adjusted Trading Rules in These Current Market Conditions

I can only speak for myself, but I wholeheartedly believe that these current market conditions (from about mid-February of this year to the present) have been one of the most difficult I've experienced.   There are many reasons but to sum things up it's because the broad markets are still indecisive due to several uncertainties with macros.  With the markets not having a clear obvious trend, traders will often be confused resulting in more crowded charts and some people will be cautious about playing the market.  As a result, we've seen volume and liquidity take a hit.  Even on days that look promising and volume is great at the open, it diminishes rather quickly (see my blog post prior to this one). 

As a momentum scalper, I need volatility and liquidity in order to trade effectively.  I don't like trade stocks that float on air or grind because I feel that they are too hard to read and too risky to hold since you are exposing yourself to lots of risk to things like random news, random dumps due to a rug pull, or a random squeeze.  These types of things vastly minimize the edge a retail trader has. 

A problem I've had recently was failing to completely adapt to these current market conditions.  As a result I would have too much size when the volume dramatically drops off in a relatively short period of time.  This results in adverse effects such as slippage and also ECN fees that get incurred if I have no choice but to take liquidity to exit a position.  So in order to prevent myself from getting into this tough predicament, I've developed some simple (and more conservative given these market conditions) rules that basically allow me to figure out proper and optimal sizing to trade with at each given moment so that way if I have to stop out, I won't have to deal with issues such as slippage.
  • Large size (I.e. 10K shares on a <$10 stock) only allowed at the open.  This is when the volume is the highest of the day so probably this is the only reasonable time you should consider going in big, since in the event that you're wrong, you can get out with a fill at the price you want easily.
  • Reduce size to 1/4 (i.e. 2500 shares on a <$10 stock) by 9:45AM.  Having studied various charts from recent trading activity, I've noticed that a lot of stocks experience volume drop offs of about 75% within 15 minutes.  Logically this means you should reduce your size to 1/4 of what you would have done at the open in order to ensure you can get in and out easily.
  • Reduce size to 1/10 (i.e. 1000 shares on a <$10 stock) by 10:00AM. Same reason as above, by 10:00AM, I notice that many stocks that are in play at the open drop off in volume by 90% so that means you should reduce your size to 1/10 of what you would have done at the open.
  • Reduce size to 1/20 (i.e. 500 shares on a <$10 stock) if needed, for the rest of the day should there be very low volume, 1/10 max.  If the volume drops off even more, then reducing size to protect any gains from the morning is a must.  Of course, if there is no price action, you should not trade at all, but sizing too big late in the day and losing your morning profits because of that is very frustrating and this serves to prevent that from happening.

So of course there are going to be exceptions but these are just general guidelines that help me prevent those really frustrating losses where you're stuck holding too many shares of an illiquid stock and you have to take liquidity to get out and have to take a much larger loss than expected due to slippage.  The tradeoff of course is that I may miss out on some trades, but the bigger idea here is to practice discipline as I feel the losses that I will prevent  from not going in too big at the wrong moments will outweigh any potential profits from missed plays during irregular hours. 

Believe me, if you've been following me for awhile, you know that I love to go in with large size and nail that big $5,000 win in 30 seconds, so it's painful for me to have to take this much more conservative approach, but like I always say, "you must adapt to the market as the market will not adapt to you".

Other rules I've been following include:
  •          Not trading at all between 11AM-2PM, and many times not even trading beyond 10AM.  The volume drop-off during this period results in no edge for the retail trader and algos start to control the action.  I've already beaten the dead horse regarding algos and manipulation on my blog on my youtube channel so I won't go over it again.
  •         Any random news play that shows up with massive volume as tempting as it is to go big because of the volaitility, stick to the sizing rules and play small anyways.  Lost big on WR last week with that FOMO mindset even though I was nailing several of these news plays in a row prior to that, which goes to show you that all it takes is one bad miscue and you will pay the price, figuratively and literally.  Play small and manage your risk and don't undo the work you did in the morning, or if you're already red, don't amplify your losses.
I thought this might be too specific to me to help others (I don't think everyone will necessarily take 10K share positions at the open) but some people have asked me about it so that's why I did the write-up.  I hope it helps people to a certain extent or at the very least gives people a better understand of why I do things the way I do.



Monday, February 29, 2016

10AM is the New 11AM in These Current Market Conditions

10AM is the New 11AM in These Current Market Conditions

I've said in a prior post that generally speaking lull usually starts around 11AM EST because mainly that's 1 hour before 12PM EST so people are starting to get ready for lunch in the east coast and also people on the west coast have placed their morning trades and are now off to work.  However since about the end of January/beginning of February the market activity has diminished greatly.  With lots of macro forces such as oil, gold, China, the Brexit from the EU, etc... pulling the market in all sorts of directions in an economic see-saw battle, we've seen lots of uncertain, choppy, low volume action which rather that starting at 11AM EST, has been commencing as early as 10AM EST, giving us really only 30 minutes of easy, high percentage trades for the AM session, which really sucks...

That's not to say that it's impossible to make money in this market, but it's definitely gotten harder due to the fact that there are less opportunities and once the volume dries out, we all know that trading into the lull hours when the algos take over is basically like handing your money on a silver platter to the market makers.  Without making this post overly wordy, I'm just going to post a few charts of a few recent stocks that were in play and let them do the talking. 





So as you can see the window for us to find easy trades with very high edge has undoubtedly dwindled in this market.  But remember the market is variable and we must always adapt.  Trade with discipline, walk with profits when you see the edge is gone.  Don't develop FOMO when you miss a big move and then trade into the immediate chop that ensues when the liquidity vanishes.  

Yes I know it's a shitty feeling when you hesitate or fumble your orders and don't get filled on a big money trade and that turns out to be the only good trade of the day and you're left with bread crumbs after. But take it from me, you've got to mustard the discipline to walk away even if you're up 0 or slightly negative because once the liquidity disappears and the algos take over after, you're going to be taken for a ride you wish you didn't get on...

I've ended my mornings at 10AM EST the past 3 trading days and ended up with 3 straight days of $2K+ profits after a shit show of a performance before that where I pretty much bagheld an MBLY short past 10AM nearly to 11AM and lost five figures.  Always make changes to your strategy as the market changes! 

Good luck and be safe out there guys.


Tuesday, February 2, 2016

Resisting the Temptation to Trade During Lull Hours (11:30AM EST-2:30PM EST)

Resisting the Temptation to Trade During Lull Hours (11:30AM EST-2:30PM EST)

Recap of My Extremely Shitty VRX Trades That Turned My Solid Day into a Shitty One Very Quickly

Let me start be defining what “Lull”, “Dead”, “Lunch” hours are.  Some people define them as being from 9AM EST-10AM EST, some stretch it out to 11AM EST and end it at 2PM EST, but for the sake of this article I’m defining them based on my own personal observations and experiences and I’m saying they are from 11:30AM EST – 2:30PM EST.  These are the hours where the volume tends to be very light and the action tends to be choppy and/or grinding.

During these hours, the “house” or the market makers have the edge because they are able to manipulate stocks A LOT more easily because of the lower liquidity.   Lower volume means they can prop bids and hold down asks with less money and risk to them.  Of course, it’s relatively easy to tell that when there’s nothing moving during these hours, (i.e. low volume, sideway charts, grinding charts), you shouldn’t be trading because there are no obvious opportunities.  The trouble comes in where you get a random play that moves big on abnormally higher volume during these hours and this is where I admittedly struggle with. 

Obviously during the slower hours, you’re more likely to get bored, this is why I always emphasize that you need to walk away, but when something starts moving randomly, your eyes are going to open wide open and you’re going to get excited and you’re going to be tempted into trading this random stock that is popping for whatever reason.  However, again we are still in the lull hours, the market makers still have the edge here with their algos running in full force and the thing with midday movers you also don’t know how if the market makers have frontloaded the move which adds another dangerous degree of uncertainty when attempting trades on these midday movers.

The stock that suckered me in today was VRX.  I was up $3.4K on the day up to this point and already recognized that all the tickers from the morning were no longer tradable and I decided to take my usual trader nap.   All of a sudden my alert blips and I hear that VRX was tanking.  I initially resisted the temptation at first and ignored it but after hearing repeated alerts of VRX tanking I eventually couldn’t resist anymore and got up from my nap and attempted to trade it, which ended up being a very critical mistake.  Not only did I attempt to jump into the stock after it already made the move, I also ignored the lower diminishing volume and choppy action as well as the manipulative hidden size orders by the market makers that kept grinding the stock against me.  On top of that I kept averaging up, which just compounded the exceptionally poor sequence of decisions that were made in a very short period of time that turned a pretty good day of gains into a sea of deep red. 

Here’s the chart so you see why it was hard to resist trading this move but also so you can see why it was dumb to trade into it as well.

Overall, moving forward, I must resist the temptation of trading during lull no matter how good a trade looks.  The market makers have the edge here and their algos WILL chop you up 9 out of 10 times. Trading with size on top of that, is basically just handing your money on a silver platter to the market makers.  On occasion I might find a good trade during these hours, but I MUST trade with much smaller size to protect my gains from the morning.  Sure I may leave profits on the table sometimes but if that means that I will never flip my solid profitable days upside down ever again, then I’m willing to sacrifice that for the sake of my trading career.

Here's to not getting suckered into trading during lull hours again!.


Saturday, January 23, 2016

The Opening Bell Trade: Long the Dip or Short the Pop? Dissecting My $MRO loss on Friday 1/22/16

The Opening Bell Trade: Long the Dip or Short the Pop?  

Dissecting my $MRO loss on Friday 1/22/16

This article is to dissect the tough decision at the open on whether you should be looking to looking to buy the first dip on a stock that's gapped up or short the first pop.  It is important to understand that we generally develop a certain type of bias, be it a correct one or an incorrect one, before the trade even occurs either from our own analysis, what the general public  or market sentiment is, from whatever CNBC says, etc... but this will focus on one thing and that is the action at the open and nothing else.

I want to use my MRO loss at the open on Friday 1/22/16 as an example of this.  I made the [wrong] decision to go long at the open and upon reviewing the trade I can easily see why I should have went short.

I developed a long bias because the sentiment on oil seemed to reverse from bearish to bullish at last for Friday with everyone and their mother touting oil and oil related stocks and indeed oil was bouncing [and holding it's gap up] for the most part that day.  So this lead me to believe that oil companies such as MRO would follow suit and at worse just gap up and go nowhere.  Instead MRO faded 2 bucks or - 20% off its highs for the day at one point, something I totally didn't expect, which goes to show you that no matter what, the only thing you should trust is the actual price action of the stock because that's the only thing that's not really subjective unlike the opinions of CNBC or someone's twitter feed.

Let's keep it simple, MRO was a short because the first 3 minute candle closed red and had a large topping wick.  This is a clear tell-tale sign that the sellers piled on and sold into the first move and the first attempted "bounce" was also stuffed and led to a lower high.  Did those sellers give a damn about what CNBC said or even the fact that oil was holding it's gap?  Nope.

Here's a chart of MRO from Friday 1/22/16 illustrating this:

As you can see the only thing you can truly trust is what's in front you, not what you read, not what you heard, and not even your own personal opinions.  What you see is what you see and that's what it is, and we have to see things objectively as a trader to correctly analyze and made the right decisions.
Now my loss here was amplified due to liquidity issues and not getting filled at my stop out which meant I had inappropriate sizing but in truth I wanted to take a step back to understand that I never should have been on the wrong side of the trade to begin with so therefore I wouldn't be in the situation where I'd have to dump a large long position in a stock that's dropping like a rock with no bids for me to sell into.

Here's another example of a short the pop at the open [and not a buy the dip situation] ZFGN Thursday 1/21/16:

Here you can see the same setup, stock attempts a move up at the bell and gets sold into and then made lower highs.  I also longed this but got filled on the stop out fully and was able to get short and I made good money on this trade.  But again I should have never went long to begin with and I would have been up nicely on the short with a better entry and at a higher price.

As always I want to provide a counter-example so you guys can see the difference.  Here's an example of a buy the dip situation at the open [and NOT a short the pop]: ZFGN, the day before Wednesday 1/20/16:

Now is this ALWAYS the case?  Of course not, there's bound to be exceptions to these examples.  But this is the stock market, nothing is absolute, however we should always take the higher percentage trade to maximize our chances of profiting. Even if a strategy yields a 99.9% success rate, there's still a chance you run into that 0.01% where it doesn't work out, just be mentally prepared for it and don't throw a fit and go on tilt if you implement a seemingly "impossible to lose" strategy and lose money once in awhile.

Again this article is to serve as a reminder to myself to learn from my mistakes.  My strategy at the open has proven to be extremely profitable in all my years of trading (on average I win on 90%+ of my trades at the open) but even then the best strategies will still need tweaking from time to time as the market conditions are always dynamic.  Hope this also helps others who feel like they could benefit from this.  I may make a video on this in the future to reiterate how important this is.



Wednesday, January 13, 2016

More Things that Cause Losses

More Things that Cause Losses

As you know I took a break from posting on twitter the past couple of days just to reset my mindset after a silly loss involving a fat finger.  It was a bad loss but it wasn't horrific however I went from an emotional high to an emotional low in a matter of minutes because of a technicality and I wasn't ready for that so I just wanted to focus on my trading and recalibrate some of the parameters of my strategy.

So I just wanted to do another write up on more things that cause losses again as a reminder to myself to not make these mistakes moving forward to eliminate more ways to lose and giving me more chances to win.

Trading with size after 11AM (including revenge trading):

It's very apparently that the volume after 11AM is clearly substantially lower the volume at the open like 99.99% of the time (barring some random catalyst like a major news event).  When volume gets low, range also tends to get tighter, both of these things combined causes the retail trader to lose edge and market makers with algorithms tend to take over and hence we why see more "controlled", "grinding", or "choppy" action during these hours.  

Note to self: It's very tempting to trade stocks like UVXY which typically has decent liquidity the entire day but choppy, whipsawing trading during lull makes the action very disadvantageous for us. 

Here's an example of a choppy, whipsawing UVXY chart from 1/12/16:

The bulk of my money is made in the first hour (where the edge is optimal for the retail trader because of substantially higher volume and liquidity) and the temptation of finding a "make-up" trade if I mess up the big money, easy trades in the morning is very tempting.  I'm sure this has happened to everyone.  Imagine your niche setup shows up at the open and you're excited and expecting  a nice profit.  Ding ding! The opening bell rings, but for whatever reason you screw up the trade.  You  hesitated and missed the entry or you chased with a bad entry.  You end up making nothing or even worse taking a loss.  Because you were expecting a nice profit off the trade and didn't get what you wanted your emotions get stirred and you start looking for a trade with inappropriate sizing to make this up.  This is revenge trading and 9 out of 10 times, you will turn your no-gain or small loss into a big loss or even a blow up.  

Easier said than done, but the thing that is preventing us from making a clear decision here is our ego.  We're too stubborn to be wrong, so our emotions cloud our judgment and we pay the price.  The correct move here is to understand that the edge is less or perhaps even nonexistent after a certain point and that we must adjust our profit expectations on the day.  With the lower volume and liquidity, we must accept that the result is fair and that even if you're down a few bucks from messing up your niche play at the open, that is the best course of action.

Trying to get long with size on a small cap big mover while it's consolidating (even if it's near the highs) around 10:30-11AM EST:

Back when the market wasn't so poor this used to be a great chart setup but the recent trends show that, aside from a few exceptions, these small cap runners tend to top out and fade to oblivion around 10:30AM-11AM (if a stock consolidates near the highs before 10AM it has a much higher percentage of a second leg because volume and interest is still typically high).  A tempting trade would be to try to get in while it's consolidating closer to the highs thinking that it will accumulate more shorts and break out but these market conditions has really put a damper on a lot of those setups and the majority of them diminish in volume greatly and just fade back slowly on air the rest of the day.  

The correct move has and always been to wait for the breakout and buy dips based on the previous resistance which now should be acting as support rather than let "fear of missing out" (FOMO) goad you into buying during the lull hoping to capture the home run move.  Alternatively, you can still try to buy washouts BUT watch size because of the higher probability of getting dumped on here.

Here's an example on ATV from today, 1/13/16:

Essentially 10:30AM-11:00AM is the "make it or break it" moment for these small cap, low float runners. Since this is when volume and interest fades, it needs a reason to keep going.  Typically, what would fuel a move would be enough shorts getting caught in the morning spike which will lead to a move higher.  If a stock continues to make higher lows and higher highs around 11AM, then it has a much better shot at squeezing these shorts, which brings back volume and liquidity and draws the attention of longs back as well.  Of course, these were more common when market sentiment was better but for now they seem to be relatively rare and for that reason we need to be more cautious when looking for these setups.

Here's an example of when a recent small cap stock, LEI, was able to do just that and ended up running beyond 11AM:

Fat Fingers

Not much to learn from here other than, don't try to multitask while trading (I was trying to talk on the phone while nonchalantly scalping UVXY) and always pay attention to your orders and positions at all times.   Really silly but costly mistake which ruined my day and mindset for a bit.

Hope my thoughts help you guys as well in eliminating more losing trades and habits.  

Until next time!


Sunday, January 3, 2016

2015: A Year of Learning

2015: A Year of Learning

This was a great year.  Not because of profits but because of all the things I learned as a trader.  I've always said that life is a perpetual learning experience and this year proved exactly that.  This was the first year where I had to make the complete transition from trading OTC penny stocks to big boards (NYSE & NASDAQ stocks) as the liquidity in the OTCs evaporated this year.   Since big boards are an entirely different beast, I needed to fully understand the way they trade as the OTC strategies that I spent the previous years to develop, no longer really applied here. Despite being a trader with over 4 years of experience, I had to press the proverbial reset button here due to these changes in market conditions.

The key to successful trading has always been establishing consistency and I feel like I've gotten way more consistent as the year went on.  Overall, I finished green on 87% of the days on the year.  My goal for 2016 is to get that to 95% or higher as I feel that having 30 red days is way too much.  However, I was on my personal best 36 green day win streak from early November to late December and only had 8 red days in the last 108 for 92% green days in that time, so I feel like I'm heading in the right direction there for 2016. 

Here are 3 key points that I figured out after spending the entire year creating a trading journal and logging that greatly contributed to me becoming a more consistent and improved trader over the course of the year.  

Discovering the high percentage niche plays and sizing appropriately into them comfortably.
As I've discussed multiple times on my YouTube videos and on twitter, my main plays are the morning washouts at the bell for a long scalp and any panic pops at the bell for a short scalp, what I like to call the "big money plays".  Most of my money have been made on these and I don't expect this to change.  They are quick and fast money with minimal risks if done right with the correct entry.  I am able to comfortably go in with some decent size on this make the quick bucks and bail.

Size in moderately on the "decent but not high percentage plays".
My next plays were mid-day washouts for a long scalp and mid-day panic pops for a short scalp but with smaller size.  Liquidity is generally lower mid-day vs. at the open therefore to manage my risk accordingly and to protect my gains in the morning I reduce my size on these so that way I don't suffer a horrific loss due to inappropriate risk management but I also don't miss out on making money on these either because I'm still profitable on the majority of these trades as well. 

Discover low percentage plays, plays that cause losses and blowups and AVOID THEM.
This was the hardest part, but a HUGE reason why I became more consistent was because I recognize the trades that kept causing me losses.  I made a note of these and eventually I was able to spot them and just ignore them and therefore not getting myself in the headaches that ensued if I were to enter a low percentage trade that would result in losses and potentially blow ups. As I figured these out, I essentially eliminated one way that I can lose.  Less ways to lose  = more chances to win.  Simple as that.  Here is a comprehensive list of types of trades that caused me to have a bad loss or blow up at some point this past year.

  • Shorting front side of a move: I'm not going to elaborate too much on this, this is pretty obvious and has been talked about by many traders.  Front side shorting is for scalps only, that's it.  
  • Sizing big on midday news plays: It's very tempting to go big on these because of the volatility and the potential for a big move, but the bottom line here is the risk is simply too great.  There are too many factors that are out of your control such as the timing of news releases, halts, market maker manipulation, etc...  Several of my biggest losses fell into this category such as shorting ADXS on that "bad news" in September, the stock ended up squeezing everyone back to new highs unexpectedly.  Now, when a stock randomly spikes or tanks on news midday I just ignore it or play very small.  It's just not worth the headache.
  • Trading into a sideways chart anticipating the big breakout or breakdown: This is also a very tempting trade to take.  Many traders will justify getting in this trade because of a "chart formation" but there's a reason why I always advocate letting the move happen and then reacting to how it trades after that (i.e. let the stock breakout and buy dips, instead of gambling before it breakouts or chasing the move).  A good example of this was BNSO in early November.  Stock seemed destined for a big breakout with a chart that showed a consolidation near the highs and then it tanked.  I took a bad loss on this trade as well and moving forward I will eliminate all temptations from trying to front run any move.  I don't care if it works 9 out of 10 times, all it takes is it not working 1 time and you're going to pay a hefty price.
  • Chasing the Breakout or Breakdown:  I don't care what people say about this but this strategy does not work in the long run.  Again doesn't matter if it works a few times, the times it doesn't work you're going to get screwed and screwed in a big way..  How many times have you attempted to chase a breakout just to have it turn into a fakeout and you got slammed on?  Exactly...
  • Revenge Trading: Forcing size to make back a loss is suicidal for any trader especially when they do it and it works the first few times, which causes the trader to develop a false sense of security that this style of trading is correct.  In the long run this will come back to bite you in a big way.  The way I deal with this once I sense that I'm taking some bad losses and I'm losing control, I just simply leave the computer and get my mind off of trading that way I don't continue to lose more control and subsequently more money.
  • Treating high-institutionally stocks like they are the same as low float small cap stocks: This is something that I figured out on my own this year.  Unfortunately I had to take some bad losses to realize this but I made a few videos stressing that high-institutionally owned stocks are way more manipulated due to the big players involved in it.  I took some bad losses attempting my washout long at the open on high institutionally stocks such as FIT and SGYP in June before realizing that I have to trade them differently.  They can dump further without a bounce or go up forever without a dip and I have to account for that.  The way I trade them now is I simply scale in a lot smaller to account for the fact that they could dump more than I anticipate for a long or spike more than I anticipate for a short.

Objectives for 2016
  • I had one too many "bad losses" and mini-blowups in 2015.  These must be completely eliminated in 2016.  Big losses are signs that stops were not respected, too much size was used in the wrong situations, etc... I will focus very hard on avoiding all low percentage trades (identified above) to prevent this from happening.
  • I will work to reduce the number of red days from 30 days to 12 days or less (1 red day per month only or less).  This ties in with the avoiding bad losses.  I will focus on recognizing high percentage plays and nailing those and ignoring low percentage plays which will eliminate losses and therefore potentially red days.  This will also increase the number of winning days.  I always felt that red days aren't just days where you're losing money, they're also days where you missed out on the opportunity to make money, so swinging a red day to a green day has a pretty big effect on your trading performance.
  • I will INCREMENTALLY increase my size on the high percentage plays.  A mistake I used to do was go in with a gun slinging attitude and get really excited when I saw a big play that potentially could make the big bucks, but this develops a very poor mindset and causes you to assume too much risk, which will result in a major loss if you are stuck in a trade that doesn't work out.  I feel that too many traders are too short sighted and they only look at making money in the short term.  Experience has taught me to realize that we need to develop winning habits in the long term so we can stay in the trading game with longevity.  So rather than going from say 10,000 shares to 50,000 shares (like the old reckless version of me would have done), I will manage my risk accordingly and increase my size incrementally from say 10,000 shares to 12,500 or 15,000 shares, which is still a 25% or 50% increase in potential profits each trade, pretty substantially if you ask me.

All of these goals should result in a bigger and more profitable year overall in 2016 but I will take it one step at a time and not jump the gun.

The purpose of this write up was more-so a reminder for myself so that I know what mistakes were made in 2015 so that I won't repeat them in 2016, but if this helps anyone else out there then that's pretty awesome as well.

Happy trading in 2016 guys!