Trade Recap 29.05/30.05

Dear L.,

time for some new trade recaps. Although I feel quite optimistic at the moment, wanting to say “I kind of get the gist of this”, as you´ll be able to read in just a minute there are serious, serious things to tackle in my trading too.

But as always, let´s get right into what I traded yesterday and today.

29.05

On Tuesday, on the top of my watchlist was VTGN (VistaGen Therapeutics, Inc., Biotechnology Sector). VTGN had gapped up considerably on Friday. However, it was not able to hold its gains and sold off throughout the day. Going into Tuesday´s trading day my thesis was that most likely more selling was to occur and I formulated my plan accordingly: wait for VTGN to sell off and then short the rebound into VWAP.

And I did. The market opened and VTGN started selling off. When it rebounded, I shorted it at $1.37. As I have basically written in every of my previous blog posts, this was a little early and I should have been more patient. The entry is so important because given stop and possible profit target it determines the risk reward of a trade.

VTGN failed VWAP and traded as low as $1.28 in the following minutes. Since my profit target was lower however, I did not take profits into this wash and decided to sit through a “temporary” bounce. This bounce was of larger and longer magnitude than expected however. Even though VTGN could not break through VWAP, it held the $1.30s for the ensuring period. When VTGN defended support again I decided to cover at $1.32. My argument was that given my trade thesis the stock should have traded lower and that the probabilities had changed because of VTGN´s trading behavior.

If I am hones however, I exited because I was afraid that VTGN would climb over VWAP and hit my stock. This would have resulted in a loosing trade. My ego did not want a loosing trade and therefore made me cover. The possibility of being stopped out should not influence my covers however. Only if my stop had been hit, this would have demonstrated that my thesis was incorrect. Consequently, below VWAP I should have remained in VTGN.

Shortly after my cover, VTGN failed VWAP once more before reaching its low of the day at $1.26. A further lesson from this trade is that in fact I want to include a time stop for my trades too. This means that generally I want to be out of these short trades after 11:00 AM EST. In the past we have seen just too many trash stocks bounce back afterwards.

The second stock that I traded on Tuesday was CODX (Co-Diagnostics, Inc., Healthcare Sector). Without any news, someone pumped this stock, basically doubling it. I kept CODX on radar and planned to short into VWAP. Finally, CODX had a huge wash below VWAP. I located my shares and waited for the bounce to short into. But the bounce did not really materialized. CODX was just to weak. I got more and more impatient and frustrated and finally chased CODX, shorting at $2.8. With this entry I set my stop above VWAP. By now I think that this is terrible risk reward trading. There would have been a few possibilities to trade this. Firstly,  I could have shorted the VWAP fail with a stop above VWAP. Secondly, shorting weakness at $2.8, my stop should have been a tight stop above recent highs.

However, given my entry and my stop, I was very uneasy during the trade and covered CODX quite early at $2.71. The stock reached a low of $2.48 before it started squeezing shorts.

30.05

Tuesday´s CODX story brings us to today´s trades. CODX was very strong premarket, reaching a high of $4.8. Despite this strength I was short biased CODX. Other stocks such as CARV recently had traded similar, just to sell off the second day. Premarket I was pleasantly surprised to obtain borrows for this and planned to short the backside of CODX. The market was about to open and my trading station froze. Nothing was working anymore and I was sitting at the sidelines while CODX was selling off big time. When I finally was able to gain control again, CODX was about to bounce. Due to the past trading lessons and my commitment to being more patient I set in a short order at $4.16 below VWAP. But this level was not reached. CODX bounced to $4.13 just to immediately sell off down to $3.6. In this case my patience most likely was not appropriate and it cost me dearly. What a trade that I missed. It truly hurts to miss out on this because of technical issues and misplaced patience.

The fact that I still had my located shares lured me into a trade later in the day. At this time CODX bounced back to resistance in the $3.5 area. I shorted $3.5. However, after a while I realized that I did not really have a plan in this trade. I covered at $3.52. This was a terrible case of overtrading which I should keep in check.

Finally, I traded SUMR (Summer Infant, Inc., Consumer Goods Sector) today. Someone pumped this and I was convinced to short it, was the opportunity to arise. Once SUMR was under VWAP, it was not able to reclaim it anymore. I shorted patiently into $1.33 and covered at $1.21. This time my entry was quite nice. However, my exit was not so. Even though I expected the washout, I was too impatient to take profits and therefore missed out. Nevertheless, all in all this was a nice trade.

Best,

Nils

Trade Recap: 25.05.2018

Dear L.,

Here comes the next trade recap from last Friday. On Friday I traded FCSC (Fibrocell Science, Inc., Healthcare Sector). FSCS gapped up a few hundred percent on Friday. The reason however was not the publication of incredible company news but rather a one for five reverse split. This split should not impact the price action of the shares at all. But in the speculative small cap world reverse splits often lure momentum traders, who look for the stocks with the largest current gains, into trades. Take this and add some chat rooms jumping into the action and you get this:

From an opening price of $3.12, FSCS reached a high of $5.17 before starting its impressive sell off. I had strongly expected FSCS to give back its gains. However, shorting the front side seemed too risky for me. Therefore, my plan was to short a push into VWAP. When the push came, I shorted at 4.32. As expected, FSCS was not able to reclaim VWAP and continued selling off. I finally covered my shares into the was at $3.89.

Even though I am happy with this cover since it was according to my plan, it turns out that this cover was very, very early.

FSCS continued to do the following for the rest of the day. It sold off to $3.6. Then it retested previous resistance at $3.9 twice. This would have been a great opportunity to reshort the stock. But I had decided to not trade FSCS anymore. FSCS reached a low of $2.72 of the day, considerably below the opening price. This demonstrates how strong the selling pressure can become once all the traders that chased the morning momentum move try to get out of their position.

Even though I left a lot of money on the table I am quite happy with this trade.

Best,

Nils

Recap 24.05.2018

Dear L.,

yesterday there was quite some market action in small/micro cap land. This time I was able to take the lessons from my last loosing trades into consideration. But let´s get right into it.

On Thursday WMLP (Westmoreland Resource Partners, LP, Basic Materials Sector) spiked from less than $1.4 to a high of $4.56. Its float of about 1.1 million shares got rotated various times with more than 12 million shares traded on the day. Despite the fact that there were no particularly bullish news, the stock was able to hold its gains. Some buyer stepped in and would keep WMLP from crashing. On Thursday, this buyer most likely dumped his position. WMLP faded all day. I had planned to short this for a VWAP reject but there were no borrows available.

The stock that I traded was AVGR (Avinger, Inc., Healthcare Sector). Wednesday, AVGR had gapped up big on FDA clearance news. Throughout the day the stock held up reasonably well. However, due to the fundamentals, I planned to short this into a VWAP bounce on Thursday.

Right out of the gate, AVGR was very weak. It sold from $2.15 to $2 were it bottomed and started to bounce. It spiked into VWAP where there seemed to be strong resistance. This was my entry signal and I shorted AVGR at $2.12. A few months ago, I would have bought this stock here most likely for the bounce play. As it turns out however the short worked and AVGR continued to grind lower. When VWAP failed once more, I covered the washout at $1.96.

Overall, this was a quite nice trade after recent frustrations.

There were quite some more stocks in play today, but that´s what I want to write about for now. I have to run to manage my watchlist for later.

Best,

Nils

 

Risk Reward Trades

Dear L.,

today´s trading taught me some valuable lessons about risk management and especially how important risk-reward is in a trade, even when your thesis is right. There were some light moments today and some more frustrating one, but let´s just get right into it.

The first stock which I traded was GEMP (Gempire Therapeutics, Inc., Biotechnology Sector). GEMP gapped up on news of an analyst upgrade to $22. Given the gap up I thought a possible chat pump of some GURU and his followers was likely. Therefore GEMP was on the top of my watchlist.

I thought that this would be a short after a spike because of  the low quality news (in my opinion) and the general performance of the stock. Just look at this long term chart and how it has been annihilated. I figured there was resistance at around $7.5 and decided to use this level as a guide.

And the pump came by the pumper I expected to deliver. In one candle GEMP shot from 6.4 to $7.7 on big volume. But it gave it almost back in two minutes. When VWAP cracked, I chased and shorted into $6.92. And there was some more downside. When GEMP started to turn around, I felt more and more uneasy and covered at $6.75 for a small gain given a tiny position size.

After retesting VWAP once more, GEMP went to new lows above $6 and went sideways for the rest of the day.

And here comes the caveat of this trade. My entry-exit was terrible and therefore this trade was a terrible risk reward trade. Let´s talk about my entry. Pre-market, I was convinced that $7.5 would act as resistance as it did. So, I could have shorted into this move with a tiny position size. Otherwise, when deciding to chase the VWAP collapse, I have to be aware of the fact, that GEMP just crashed $1 in a matter of two minutes and that a bounce is almost guaranteed. In this case my stop should have been according above VWAP (and not above the high of the day Oh my god). When GEMP started to creep back towards VWAP, there was no reason to cover this into this move whatsoever. VWAP is the one guide and as long as GEMP traded below VWAP sellers where in control and buyers where hurt. A final approach would have been not to trade the first two moves at all and instead to wait for a possible move back towards VWAP to short into this move with a tight stop. In this  case, I would have risked to miss the trade. However, shorting the VWAP reject seems like a good odds play to me too.

Thus, the takeaway of this trade is having a better risk-reward plan when entering the trade. Even though my thesis was correct, I almost did not profit off it at all.

The second stock I traded was IHT (InnSuites Hospitality Trust, Financial Sector). Based on the incredible PR “InnSuites Hospitality  Trust (IHT) reports strong net income and revenues” (not true at all if you read the filings), IHT was pumped too. Again, the same pumper involved in GEMP took a peace of the action.

Unfortunately, in the case of IHT both my entry and exit where absolutely terrible. First of all, I shorted when IHT seemed to be breaking down and got a fill at $3.04. I had seen the lower high and chased. However, at this level I shorted directly into VWAP which means that I shorted into support – a terrible choice. Then, as may be expected after a VWAP defend, IHT grinded back upwards. I exited at $3.4 because my position size was too big. But this stop was just completely unnecessary. If I choose to play the lower high (even though terribly executed) above VWAP, I should have a small position size and put my stop above the high of the day. As may be seen, IHT topped four times at $3.7 before putting in a real lower high, crashing through VWAP and then selling off for the next hours.

Once more I have to conclude that before entering a trade, my entry, stop and target have to be chosen way more carefully. Better not to enter a trade and lose an opportunity than chase without a clear plan. Nevertheless, I am happy about having had a first feel of shorting these pump stocks.

Best,

Nils

 

 

 

Dumb Money

Dear L.,

So I guess it is time for yet another update. Recently, I have had lots of screen time. I have not traded as much but there have been two trades this week that I want to talk about.

So, let´s go.

ITHUF (iAnthus Capital Holdings, Inc., Cannabis Sector). I bought this stock because of both its long-term chart and the fact that I think there will be some more great opportunities in the Cannabis sector. On Friday, ITHUF passed through the resistance level of $3.72 and I entered at $3.73. Nothing much more happened on this day and I held ITHUF over the weekend with the plan to make this a multi-week swing.

Monday came and the market opened, without ITHUF. After some search I found that trading had been halted due to anticipated company news. The news finally hit just before the market close. It was announced that “Gotham Green Partners Invests $50 Million in iAnthus to Accelerate Growth Opportunities”. After reading through the deal, I did not know what to expect for the following trading day. On the one hand, the private placement would lead to dilution for existing shareholders. On the other hand, the investment may be interpreted as a great opportunity for the company. Therefore, I decided to  stick to my game plan and exit if support of $3.45 was not about to hold.

Trading opened and for a second it looked as if ITHUF would tick up. But the bid quickly was taken out and within three minutes ITHUF crashed from $3.75 to $3.44. Seeing this panic, I switched on to Autopilot and when $3.45 failed to hold (by just one f** cent) I stopped out of my position at $3.44 for what turned out to be a considerable loss.

In this case I was the DUMB MONEY, selling exactly the bottom. As if to ridicule me, ITHUF rebounded, reached a high of $3.94 and closed well in the green. While I still should be in this trade, I exited at the worst point.

So why does this keep happening to me? I think in this case my position size was a key mistake. Given the fact that my plan was to hold ITHUF as a swing position, I should have downsized compared a day trade. This would have allowed me to set a wider stop more appropriate for this time frame. For the moment it is just incredibly annoying to be the DUMB MONEY, especially when the original trade thesis seems to have been the right one.

BOXL (Boxlight Corporation, Technology Sector). On Tuesday I Monday I decided to have a stab at BOXL which spiked for unknown reasons. In my opinion this is a terrible company, with serious financing needs. Thus, I wanted to give this a try on the short side.

BOXL, topped out at $9 and then set in a lower high. After this lower high, it flushed right below VWAP. I chased there a little bit and entered my short at $8 expecting BOXL to fade below VWAP for the next hour. However BOXL reclaimed VWAP and went back to $8.5. I had avery tight stop in this case and stopped out at $8.34 for a small loss. BOXL traded sidewas for the rest of the day, with volume drying up. Then, at 19:00 a press release came out stating that Boxlight Corporation was about to acquire another company. Given the fact that the acquisition was financed with shares at $7, this should have been a dilutive announcement. Traders however, got crazy on the news and BOXL topped out at $12.5 for the day.

Even though my entry and exit where chosen badly, I was saved from the short squeeze in this case. I do think that my mistake in this case was to chase the wash instead of shorting the lower low or waiting for another spike. This put me in the bad position of having a bad average and made me cover early.

Well, these are the two trades I wanted to talk about: one truly frustrating trade and one educational one. But I wont give up and the markets will open in a few hours again.

Best,

Nils