This week I have been listening to the audio book „Trading in the Zone“, one of the classic books on trading psychology. At some point the narrator asked the following question: „If you had a wish and were to be given one trading ability, which would it be?“. At this point I was actually following the markets and therefore I did not really listen. Subconsciously my answer was: „Following my plans and taking action!“.
So, here we are again my best L. I have come back to reality. With hindsight and confirmation bias it all seemed so easy during the past three months when I was not able to actually trade myself. But now? Well, actually it still seems „easy“ and „predictable“ but pushing myself over the edge is a lot more difficult than I had expected.
But let me tell you this week´s story.
This week started like every other week in recent months with me going to work for Monday and Tuesday were the final days of my internship. Thus, once more I can only tell you with hindsight bias about the market action for these days.
But on Monday there were some very appealing bounce plays.
There was ALDX, bouncing from the $8.5s to $9.5 in a matter of four minutes. Pay attention to the daily chart here. It just looks perfect.
And there was KNDI, which went from the $4.70s to $5.4 in under 20 minutes too. You see – there were some nice opportunities.
After another day of work on Tuesday came, you may have already guessed it, Wednesday. The best trader in the world was back in front of his laptop (did I mention that I even have an additional screen now? – sweet huh?).
The first stock on our list was actually on my watchlist too. ITUS had gone totally nuts in the beginning of the week and went from $ 0.7 to almost $2 on news of an issued patent. You know that I like these high flyers later in their cycle. More specifically I think the risk reward is the best after some days of selling off. However, more recently I additionally became more fond of the setup of buying these stocks for a red to green move since they can squeeze shorts extremely easily. The problem with this setup compared to the bounce play setup is that in this case there is still much selling pressure left once people take profits.
Nevertheless, I was watching for a weak open and then a squeeze – the known old story. And what we got was actually exactly this move. ITUS sold off down to the mid 1.70s before finding support and grinding higher. Then, when it broke the opening level in the mid 1.80s, it quickly squeezed to $2.35. What was I doing? I was sitting at the sideline. Well, I guess that for this first trade I can use the excuse that this was just too fast for me after having been away for a few months…. Nah, this excuse does not sound not too convincing to me either.
Well, just for the sake of mentioning them, let us have a look at two more red to green movers which were not on my list. PULM squeezed nicely from around the mid 1.90s to the mid 2.30s. To be fair, even though it found support it did not put in higher lows and almost all of the squeeze happened in a single candle. Thus, playing this squeeze was very difficult indeed.
Additionally, SPI, which should have been on my list given the chart, went from just under 10 cents to just under 15 cents – not too bad!
On Thursday, there was not too much to complain about. One crazy move to mention was on the side of AKTX. Look at this crazy composium of shorts getting squeezed and longs chasing. From the low 6s to almost $12.
And then there was the newest pump PEKN, having its final crash and offering two very nice dip buying opportunities. Since I usually scan for OTC stocks with a price of under $3 this was not on my watchlist. I probably should adjust my criteria I guess.
So let us revisit the fateful day. There were a bunch of stocks on my watch list for Friday – so many nice setups.
First, we have HMNY. Based on the chart, this was not a real bounce play yet since it had sold off only marginally on Thursday. Nevertheless I thought that this may offer a nice red to green move. Pretty much right out of the gate HMNY started to spike. Thus, my favorite setup did not materialize and I was out. I´m ok with that. What happened later in the day however is impressive. HMNY broke out of its down trend at around 16:15, it subsequently spiked from around $5.8 to almost $8 before selling off again.
The next one on my list, and albeit one that makes me upset, is ITUS. This one had a very similar daily chart to the one of HMNY. But unlike HMNY, ITUS offered the red to green move – so I though. At the open ITUS sold off from $2.13 down to $2, which is a good range for the bounce in my opinion. At $2 it found support and put in higher lows. At this point I already missed some of my entries due to the fear of entering my position but finally I bought some shares at $2.07 which actually is a nice entry. Just after my purchase, ITUS started its squeeze – up to $2.18. At this point I thought about selling for a moment but decided that a squeeze should lead us much higher. However, ITUS failed to squeezed and sold off down to $2.06 again. I became a little nervous at this point. But why the ***? I had a stop at around $2 and was certain to be executed given the liquidity. There is no way of trading without having losses from time to time. So why be so nervous? Maybe I need more exposure again. Anyway, ITUS made another attack, crawling back to the crucial $2.13 mark. But once more, short sellers pushed ITUS right back and I threw in the towl at $2.12. ITUS went lower to $2.08 (a higher low), made a third attack and sold off to $2.1(yet another higher low), finally broke out and spiked to as high as $2.5.
So what is the lesson of this trade? First, my entry was nicely chosen. The fact that I was able to generate a small profit despite my unacceptable exit shows this. Second, once more I exited my position with a minuscule profit just avoid a (very small – given my stop) loss. Let us have a look at the chart again. When the squeeze got rejected for the second time – was there any significant level on the chart broken? No! ITUS barely sold off four cents and quickly recovered. The price action at this point did not invalidate my entry at all. I have to say it once more. It is 1000 times better to exit with a (small) loss at a point when your trade idea has been invalidated than to exit with a minuscule profit just to make a profit. It does not matter if my win rate is only let´s say 30% as long as my winning trades are much larger than my losing trades. Traders do go broke taking profits after all and missed opportunity cost is a cost too – as we see in this case and further down too.
Lesson learned, I have to include different time frames and stops invalidating my trade idea for my trade plans.
I really had hoped not having to write about the next trade and actually did not pick up my „pencil“ until the market close just in order to avoid the painful reality. While I could have earned more on a more appropriate ITUS trade, the next trade, the next missed opportunity, makes me want to attribute myself an IQ of 80. GLNNF is just the perfect breakout out of its resistance at 30 cents.
Already on Thursday, I was watching this stock. However, when it was clear that it would not break out during this session, I promised myself to watch it again on Friday. And boy did it break out on Friday. Since I like to buy these OTC breakouts at the end of the day, speculating for the morning gap up, I had not clearly articulated my plan for a morning break out. This led me to being sitting at the sidelines thinking at many points „let it just come back to X and I´ll enter“. Well, obviously it did not only not come back but went as high as 38 cents from its breakout level at 30 cents – more than 20% of appreciation. If this follows the pattern on Monday, and I bet it will, it will gap up and offer even better returns. Let us see – I clearly deserve this lesson and hope I have learnt it.