Warrior Trading Blog

Oh No! Red Day Recap – Down $3,285.35

What’s up, everyone? All right, so back in the saddle here on Monday morning, but unfortunately, a second red day in a row, down $3200. Right now, we’re definitely seeing a shift in momentum; whereas, last week and the week before and the week before that, we were seeing this exuberance. These big, big moves that were not logical, but that were fun, and so we were able to profit from them and do really well. The thing that’s interesting is, when we’re in the market, the type of market where we’re seeing these exaggerated moods, we know that it’s a reflection of the emotion. Traders are feeling that fear of missing out and the greed, wanting to get a piece of this next big opportunity.

What often happens is, instead of stocks slowly rising up, they just start going from $2 to $6. They just go straight to the moon, as traders scramble to get a piece of the action. What then starts to happen is, the more often those stocks come right back down, short sellers because faster about taking short positions as those stocks are squeezing up, recognizing that eight of the last nine came up and then went all the way back down.

When that shift happens, as we’ve seen in the last couple days, stocks that start to pop up get slammed right back down. Yesterday or Friday and today, the stocks that I was trading, I jumped in at the same places that I was getting in two weeks ago and a week ago, the same setups that were working really, really well, but now the emotion has changed a little bit. Now, you’re seeing more of the FOMO on the short side, where short sellers see this as an opportunity they don’t want to miss, and so, before waiting for really good confirmation, they’re just getting in short. That puts a ceiling on some of these moves. The sooner we start to see those ceilings, the more difficult it becomes to just jump into these stocks of long sight.

What we now have to do is switch gears and wait for the first pullback. Instead of just giving in to that exuberance and trying to ride the momentum, we have to wait for the stock to popup, and then pull back, sustain that level, and then get in for the next move up. That’s where those early short sellers will get squeezed out, because the stock will continue higher, and they get stopped out at the high of day, which would be their max loss.

For us, right now, in order to have a stock pop up, pull back, and go higher, it needs a valid catalyst. It needs some type of news. All these stocks that are popping up and then dropping down a little bit and don’t have any headline, they’re just going to continue to drift lower, and they’re not going to hold up. Right now, we do have to pivot a little bit, switch gears. The momentum can change very quickly. Two red days in a row is definitely a red flag for me to slow down, but things will improve, and right now, it’s just a matter of sitting and waiting for those good pullbacks, so we can buy them up and ride the second wave up. All right, so anyways, we’ll break down all of today’s trades in today’s Midday Market Recap.

All right, so we’re going to break down the trades from today, second red day in a row, certainly not what I was hoping for here on Monday. I was really just hoping to get two good-sized decent little scalps out of the gate and start to rebuild a little bit of confidence, build up my cushion a little bit, after the red day on Friday, but that is not what happened today, a second red day in a row, down $3200. I think this year I had three red days in a row in February, which would, I think, currently be my record for number of consecutive red days. It’s not a record that anyone’s trying to set for themselves, but I think that’s where I’m at now for 2018, and, like I said, a little bit of a disappointing day. It’s not what I was expecting.

One of the things I was just talking about in my Midday Recap intro video is the ebb and the flow of the market and the fact that we have these shifts where, let’s just say … Last week, for instance, what were some of the stocks we traded? CALI. Look at the stock, CALI. This stock on … What was it, last Thursday or something like that? I mean, it squeezed from $4.60 up to $6.20. Two days before that, it squeezed from $5 all the way up to $8.77. That’s what we call exuberance.

That is a stock that is just … Traders are piling into it. They don’t want to miss the opportunity, and so, when it starts to squeeze, they’re jumping in. Now, here’s the thing. This stock did not hold up very well. It hit a high of $8.77, and an hour later, it was back down to $5.33. Just as long traders saw this as a little bit of an opportunity here, to get in at $5 and sell it at $8, short sellers saw a very clear opportunity on this to short it at $8 and cover it back down at $5, $5.70, $5.30. There were clear opportunities on both sides, and this is in contrast to stocks that squeeze up, pull back, and then go higher.

Last week, we saw a couple of other stocks. We could look at DXR as an example. This was back on — what day was this? — some point last week. This one squeezed up pretty dramatically from $10 to $12, but it kept going. It went from $12 to $14, from $14 to $16, from $16 to $18, all the way up to $20, pull back, and then up to $24, or $21. This is an example of a stock where a short seller may not see as clear of an opportunity, because the thing just kept going up.

That’s what creates the exuberance for long bias traders. When stocks do this type of thing, we just, as long traders what to get a piece of the action, and the next stock that starts to open up, we’re going to be really quick the jumping in. Not surprisingly, the next stock that opens up, short sellers are going to be a little cautious about shorting, because, well, DXR yesterday went from $8 to $20. I don’t want to get squeezed out, so maybe I’d better be a little more careful.

If you look at it on an extreme level of LFIN back in November, from $20 or from $16 up to $26, and then the next day from $35 up to $142 a share. That definitely puts the fear into short sellers’ eyes. These are stocks that can spark really strong waves of momentum, where the next stock that starts to open up, traders are super fast at just jumping into it and trying to ride the momentum.

Here’s the thing. At a certain point, jumping into the next stock that starts to leave the station, the next train that leaves the station, stops working when they don’t have true catalysts, and they don’t have really good daily setups. What starts to happen is you get these false breaks, where stocks start to pop up, and then they get quickly reversed, and they drop back down. That’s what we saw on CALI on Wednesday or Thursday of last week, where, yes, it popped up, but it’s not holding those levels at all. That starts to become a little bit of a target for short sellers. Of course, long traders, some of them start to get burned, because they’re buying it a little bit too high, and they’re rolling over.

That’s the beginning of the shift. Today, we almost, I would say today and Friday, we really saw the peak of the shift. On Friday, BGI … This is a stock that I traded right out of the gate. I got it at $2.60, and look what happened. I mean, not more than a minute later, it was back down at $1.60. It got totally rejected. CDNA on Friday, I jumped into this at $8, and seconds later it was back down at $7.

These are very quick rejections, and they are not continuing, on the second leg, higher. They’re not continuing to move up. The exuberance is starting to wear out, and traders are now feeling more fearful about buying because, geez, well what if this happens? Today, OGEN hit the scanner. I jumped into it at $2.95, which is the same type of entry I would’ve taken last week, and a minute later it was back down at $1.89, so, boom, a $2000 loss. Then we had a couple others hit the scanners, that I didn’t take.

TIK … It hit the scanner. It popped up to $3.95 and was back down to $2.30 five minutes later, big rejection. Another one, SGLB … It pops up to a high of $1.84 and then drops back down, right back down to $1.40. The more we see these types of rejections, obviously, there’s barely even an opportunity to make money on the long side. These are the type of stocks that short sellers are going to jump on. In a sense, they’re going to see a stock hit the high-day MOMO scanner, and they’re going to prepare their order to short it, because they’re thinking, “Okay, look at what happened here, here, and here. This thing … I’m just going to short it,” and that will work until it doesn’t.

It’ll work until you have one of these that taps $1.90. It then pulls back, just for a little second, a little bull flag, and then it keeps going higher, and it goes up to $2.10, $2.20, $2.30, $2.40. It squeezes out those early short sellers. It gets halted on a circuit breaker at $2.50, resumes at $2.80, goes up to $2.90, $3. More traders jump in. Next thing you know, it’s at $3.10, halted again, resumes higher, $3.40, $3.50, $3.60, tapping $4, and then maybe rolling over, pulling back, and if there’s a good catalyst, by the end of the day it’ll have to hit $6 or $7 or $8, and that will start the next round of momentum.

Day two, maybe it’s gapping up and goes up to $10 or $12. That’s the same type of thing we’ve seen. Right now, we have to wait for that setup. We can’t predict when it’ll happen. We don’t know. It could happen tomorrow. It could happen this afternoon. It might not happen for another week, but when that happens, that will most likely trigger the next round of momentum. RKDA, another really great example … This stock definitely helped fuel the massive momentum that we’ve seen in the last couple weeks.

For me, the way I trade these, and I trade this both as I’m trading the actual stock and over the course of a day, so as I’m trading these actual stocks, I look at them, and I say, “Okay, I’m going to keep buying it for a move higher. I’ll keep buying the pullbacks to try to scalp for the next leg up.” I just continue to do that until I have a loss. Then, once I have that first loss, I usually say, “All right, at this point, I think I’m going to go easy and just be done with it.” Maybe I go in for a second one. Maybe I have another winner, another winner, and then another loss. At that point, I’m like, “Okay, this is no longer as easy as it was before.”

Well, I do that on the same level … on a daily level. Last Monday, I made $9000. Wednesday, I made $15,000. Thursday, I made $4000. All right, so some really big days, and then on Friday, I lost 11 grand. A pretty big red day, and here on Monday, I’m down 3200 bucks, so now I’m starting to say, “Okay, I pushed it as long as I could. I was aggressive for as long as I could, and now I’m seeing that the tide is changing, and I need to be able to step out of the way.”

Now, I can continue to step up to the plate and continue to get slammed back down, but that’s not smart for my account. Today, I gave it a chance on two other stocks, same reaction basically as Friday, and so now it’s time for me to pivot, for me to adjust, for me to seek shelter from the storm, be a little bit more conservative, until we see that next stock pop up and hold its levels.

Holding the levels is so important, because it’s what shows us that there either is a hidden buyer that is absorbing all of the short sellers, so, yeah, some people are shorting it, thinking it’s going to go down, but it’s holding right up there. Someone else wants to buy it. Usually that’s because there really is a strong catalyst or, for whatever reason, there’s someone that’s really bullish on the stock. Then, it starts to move up, and more buyers come in. That’s what creates a second leg.

That second leg up, that second … Basically, the first pullback and the second move up, that’s what’s so important for us to see right now. We certainly didn’t see it on TIK, obviously. We didn’t see it on OGEN. We didn’t see it on SGLB. We really haven’t seen it on anything today, and that is just where we’re at right now.

We need to be a little bit more cautious. If that means sitting on my hands for three or four days and only trading with 2000 shares until I start to see the follow-through, that’s fine. It’s better to trade with 2000 shares than to trade with 10,000 or 12,000 and keep losing 15-20 cents. Under my trading here, my warnings, I’m going to put this down to … I’m going to put it at 5001 share.

Now, you might say, “Well, geez, Ross, you’re down $15,000 in the last two days. You’re not going to be able to make that back with 5000 shares.” That’s true. I probably wouldn’t be able to make it back with 5000 shares. However, the instinct to try to make it all back in one trade is very dangerous. That’s what can get you into a really big hole, and I certainly don’t want that to happen.

Let’s look at my stats here for a second. These are my Tradervue stats for … Well, this is 2000. I guess this is a pretty long period of time, but let’s look at … Let’s go to Detailed, and then we’re going to look back down here. This is the Equity Curve. All right, so you’ll see here, you’ve got the move up, and then a little bit of drive down, a little bit of drive down, and you don’t just bounce right back up. You slowly regain confidence, and then, this right here is a window where the market was choppy for probably two weeks, two and a half weeks, and then it opened up again, right here.

In the middle of that, we had a couple days of choppiness, right here, about a week of chop, and then it opened up again. Here we had a month of chop, which was the month of February, and then it started to open up again in March. I’m up $30,000 in the month of March. You can have longer periods of sideways consolidation, as I’ve experienced. This is like a six-month period, where I was making money, like $5000 a month, but I wasn’t having really, really big wins. You can have periods like that, which are not uncommon, but then, what you want to do is avoid giving up profit. It’s better during this period to trade with small size and just be churning, making enough to cover your bills and to get by, but not taking big risks, because you know it’s not the right market environment to take big risks.

Then, once things start opening up here … This is a place, where we started to see the market open up, and so that’s when I was like, “Okay, I’m recognizing that things are opening up. It’s time for me to put the pedal to the metal and get aggressive,” and, boom, that’s how you have a couple big days. Little chop, little chop, things opening up again, and I’m getting aggressive again, aggressive again. Now, through here, things were slow. Then, as we started to open up, I started to get aggressive, and right now it’s just looking like this is just a little bit of a smaller wave up than the ones that we had back here in November and December and January.

A little bit of a smaller move up here in March, little bit of a pullback, and it might be a little bit of a grind here for a couple weeks. We’ll see. I mean, it’s really … It’s not seasonal. Some people will look at this and be like, “Well, that was the month of February, so next February’s going to be the same way. It’s really not like that. It’s not seasonal. It’s cyclical. We see waves and cycles, but they’re not tied strictly to the seasons. They’re really connected more to how long ago did we have a stock that pulled an LFIN and went from a dollar to $144 a share.

Yeah, Nate, we will see some sector rotation in that sense. We’ll see the shipping stocks. They were really strong at one point, but then they’ve been out of play for a while. We’ve seen biotechs. They’ll be really strong at some point, and then they start to slow down a little bit. It’s the ebb and flow.

Anyways, my other trade today was on TOPS. I jumped into this, thinking that we were going to get a breakout over $2.50. You can see right here, we had this consolidation, but ended up being a false breakout; $2.50 was the high of day, couldn’t break that level, and so just came back down. False breakout here, false breakout here … You can see it on the five-minute, false breakout. No love, and I should’ve maybe been a little more conservative on that one, but I thought that if it opened up, it had potential, and I guess I was wrong.

Anyways, today is my 54th trading day of 2018, down $3200, so a little bit of a bigger loss than I was hoping for. I’ve been good this month about keeping losses small up until Friday and again today, but, again, to make $14,000 in a day, like last Wednesday, or to make $9000 in a day, like last Monday, you have to take a little bit more risk. You’ve got to step up to the plate. I certainly did that, but I just … Eventually, you will strike out, so a couple misses there, Friday and today, but I’m just going to pivot, adjust a little bit.

I’m getting ready to leave this week for our Inner Circle Seminar, so I’ll be trading from the seminar on Thursday, well, I guess just Thursday. Friday is a market holiday, so it’ll be a little bit of a short week this week. We’ll see if we can try to finish this week in good shape. I would like to set the personal goal for myself that I finish the week green, because then I’ll be green every week of this month, which is a nice goal to set. Even though I lost $11,000 on Friday, I still made $20,000 last week. Being down $3200 today with three days left in the week, I’ve still got time to redeem myself.

Hopefully, I’ll be able to, but, at the same time, there’s no reason to get bent out of shape if I can’t, because I know potentially two weeks from now, I could have a $30,000-$40,000 week, right? Once things start to open up again and I can be aggressive, we could have some really great weeks.

Nick, the reason I didn’t take the bull flag on TOPS was because I just didn’t trust it after the choppiness in the one-minute pattern. Oftentimes, if a stock is really choppy on the one-minute timeframe, I’ll just feel like it’s not worth trying to trade the five-minute. On that one, you had three doji candles in a row, and I just thought it wasn’t likely to give us a good move. I’ve got to add my moving average here again. For some reason my 9 EMA got dropped off my chart.

There we go. I’ll have to make it a little bit thicker. Yeah, anyways, that’s about it for me today. I’m not going to push my luck. I’ll be just kind of done for the day and back at it first thing tomorrow morning. All right, so I’ll see you guys in the chatroom tomorrow morning. I hope you guys have a good afternoon and get a little bit of rest, study a little bit, and we’ll see you in the morning.

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