Grinding Out A Challenging Month As A Day Trader
Hey all, JohnL10 here!
Now that April is over, I can put some of my thoughts on paper about why I think it was a challenging month for both long and short biased small-cap traders.
From my perspective, there hasn’t been much follow-through on positive corporate news from the companies that we focus on, and it seems like we’re on the tail end of a lot of hype from earlier this year. Contrary to Q1 of 2017, where I have already made more than a 6-figure salary in 3 months, Q2 is starting to be much more challenging.
Here’s the run down:
Many of the stocks that we’ve traded in Q1 have raised a lot of capital, even back during Q3-Q4 of 2016. During that time, stock that was sold to private investors gets locked up and is restricted from trading. Most lock ups are anywhere from 3 to 6 to 12 months long.
I feel like for the entire month of April, maybe those shares are now unlocked, and those investors are selling at any price, thus what is making stocks that gap up on positive news, make new lows and go red on the day, sometimes often making a new low right before market close. Something like that, isn’t short-biased traders pounding a stock down, it’s financers selling their unlocked shares all day long, taking easy profit off the table.
That’s not anything new if you have experience in the capital markets, or know anything about how these companies are financed. Debt, or worse, toxic debt is sometimes the only way for these companies to raise money and keep the lights on. Now of course, short sellers take advantage of the opportunity and take a small piece out for themselves, but from what I have been seeing, it hasn’t been easy for shorts either.
The market is crowded and every newbie trader wants to short, making many trades difficult. This also is making borrowing very hard for the more experienced traders. They are left with only the hardest and most expensive borrows, which makes their trades quite limited. It got so bad I have even seen short biased traders tell new people to go long! They want people off their playground.
It’s quite simple, if traders see stocks keep going up, like the shipping mania for example, everyone wants to go long. Then a trend-shift, traders see stocks giving back almost all their gains or more, they want to go short. For me, I stick to what I am good at. I go long, and the only difference in this kind of market is how long I go long for.
The reality is there’s a finite amount of borrows out there, and if enough people want to go short, there won’t be any supply. So what happens then?
The market usually corrects itself and punishes naïve traders via a short squeeze.
The market gives and it takes, but when it takes, you must hold on for dear life. In the screen shot below of my trading P&L for April, I make an analogy about walking into traffic. You don’t want to stay out there for too long or you will get killed.
That’s how April was as a long-biased trader. If you overstayed your welcome in a trade, you were killed. If you stepped out at the wrong time, you were killed. If you stepped out in front of the wrong trade even if you timed it right, you were killed, if you tried to make any bias about corporate news, you were killed. There was only 1 way to live, and if you figured it out soon enough, you might have done well. If you didn’t, you learned something about yourself and will become a better trader.
I am not sitting here all high and mighty, trading is a very difficult. Emotions are not easy to overcome, as they keep changing and becoming more complex as you evolve as a trader. The emotions you had when you started to trade are long gone and now suddenly, you have much more different emotions. It’s a constant struggle with ones self.
The reality is from 4/12 to 4/28 I was almost red every other day. Being up 4-figures, and then a small 3-figure profit. Then being up 4-figures again, and then up only 3-figures. Those 3 figure days I barely got out alive. I was probably even red on most of those days and somehow came back to green.
So what’s the end result? I still grossed $21K on the month, averaging about $1.1K per day for the month of April. A $21K month is $250k+ a year in just capital gains. I am cool with that; especially considering that I have other businesses that provide income! The most important thing I had to realize was, I really needed to not have a big red day, as I knew, if we never saw a good trade for the rest of the month, it would be hard to recover.
The strategy I trade is very similar to what Ross trades day to day and what he teaches in Warrior Pro course. Although Ross himself had somewhat of a difficult month, he also has additional pressure of being the head moderator who voluntarily reports his entire trade history daily. That’s a lot of stress that I don’t have. I don’t know any traders that do daily video recaps, showing their P&L like he does throughout the good and the bad, only to have people judge you. So you have to give a certain amount of respect for that, it’s not as easy as it seems to lead, trade and teach, all at the same time.
So that about wraps up what I wanted to say. Many traders can trade the same strategy and have wildly different results, and I think April is a good example of that.
Keep it up, and see you in chat.