Tag: nick’s blog posts

Day Trader vs. Long Term Trader

Day Trader vs. Long Term Trader

Posted on by tyler@vanttrading.com

Becoming an Active Day Trader Vs. Long Term Trader 

I want to preface this blog with the fact that I am almost uncomfortable making this post. I don’t really consider the difference between a long-term and short-term trader to be that vast, and not NEARLY as important as what makes a good trader. But people always ask what the difference is and what they should do, so I want to try to make some distinctions between the two. 

 

I want you to take a moment and think about a professional sports team. Let’s look at a professional NFL Team. What do you think would happen if Tom Brady (a quarterback) decided to play on the offensive line? For those who don’t know football, he would be crushed. Tom Brady is one of the best Quarterbacks (if not the best) of all time. However, his skill set does NOT match what would make a good lineman. The players on the line should be BIG and STRONG. Whereas Tom Brady needs to be FAST and ACCURATE. Now I am not saying Tom Brady is not strong, but he had to find the role on the field that best fit his skills and attributes. And while in practice, Tom Brady will not be working on blocking he will be working on throwing.  

Yeah, I hear you. You’re saying, “Get to the point.” Well in the same way that a professional athlete needs to play the position that best fits his skillset, a trader needs to find their best fit in the markets. Now I am NOT saying that you need to choose right now whether you want to day trade, swing trade, or invest, but rather it is something you should always be analyzing. Where is it that you succeed? I am not even saying that you MUST choose one role. As they develop, most traders end up having a mixture of strategies in order to become diversified. And if you are a beginner you will not know where your strengths lie. So, you are at a disadvantage compared to the athlete who has grown up his whole life playing in a specific position. But you have an advantage in that it will not be hard to find your place in the market, and you won’t be relegated to a single role. The best part about the markets is that if you can find success as a short-term and a long-term trader, then do both!  

 

So, if you are new, or don’t know where your place in the markets is, what should you do? Well ultimately being a good trader results in you working on yourself more than anything, so you should always be starting within. Work on your patience, your market knowledge, your discipline, get your reps in, and ultimately just start immersing yourself. You will start to see where you tend to look when it comes to trading. But when comparing short-term/day trading and long-term swing trading you tend to see certain characteristics take priority. This is NOT an exhaustive list; it is more our take on some of the traits that tend to make a good short vs. long-term trader.  

 

SHORT TERM TRADING  

When I say short-term trading in this instance, I am just referring to day trading. That involves entering and exiting a trade within the same day (sometimes within seconds or minutes). So, as you would imagine, speed can be a day trader’s best friend. Being able to enter and exit quickly and efficiently can be the difference between success and failure. If you are trading fast, volatile stocks then you don’t have the luxury of taking your time in entering your orders.  

Time invested is also a big difference when it comes to day trading. You need to be trading much more often. You can’t afford to miss a good day or a good trade. You need to be in early to read the news for the day. You need to find the next hot stock or play. Versus a long-term trader who is more of a sniper and does not need to necessarily get in as early every day.  

Organization is also going to play a big part in day trading. And what I mean by organization is being able to track multiple stocks at once. You do NOT want to be following dozens of stocks at once, you will not be able to watch them all, especially starting out. But you want to have alerts set for important levels and be able to manage multiple positions at once as you progress. 

Decisiveness can make or break a day-trader. If you are wishy-washy and cannot commit to the decision quickly, you will end up hurting yourself. You need to see a play develop, think about all the possible outcomes, plan for each one, and commit to your trade. Then when that trade develops you need to follow your plan. You cannot create a plan and then divert from that plan as soon as the trade starts moving.  

 

LONG-TERM TRADING 

Think of a long-term trader like a sniper. You see your target, you gauge the wind and environmental conditions, you line up your shot and you only pull the trigger when it matches your desired criteria. Disclaimer: I have never actually tried shooting a gun at long range so if I have given a bad metaphor for you actual snipers, I apologize but bear with me.  

Therefore, Patience and seeing the bigger picture are important for a long-term trader. You don’t need to necessarily worry about what a stock is doing that minute or hour. You care about where it fits in the daily perspective and where your best entry is. Making sure you maximize how much you are aiming to gain vs. how much you are risking is important. If you are impatient and enter a trade before it develops or before it reaches your optimal entry point, you could turn that winner into a loser. And a long-term trader who tends to have fewer trades does not want to waste a potentially profitable trade. There could be days or weeks where you don’t enter a new trade if it does not suit you.  

Having a larger Macro View of the markets also tends to better suit a long-term trader. Your stocks are probably going to be at greater mercy to the movement of the market than the day traders. A stock can have movement and price action independent of the market on a minute-to-minute level. But when it comes to the movement of the stock over weeks and months, if the market, or at the very least the sector the stock competes in, is moving one way, your stock may very well tend to follow. Now it is obviously optimal if you can find a stock that has an order flow that is independent of the market but having a good macro view of things will always help you better understand why a stock may be moving in that direction.  

I actually believe that having a decent basic understanding of Fundamentals can benefit a trader. Let me preface this by saying that I am much more of a technical-based trader. I look at the stock charts and patterns and look at price action. However not knowing the fundamentals of a company could hurt you in the long run. I am NOT saying you need to pour through the company’s documents, prospectuses, and income statements. But rather you should understand if the company has been reporting good earnings, what their sales are looking at versus forecasts, and what the fundamentals of the company generally look like. That is because from a Long-Term perspective, fundamentals tend to have a MUCH greater impact than on an intraday level. A company that makes no money and has terrible fundamentals can go up easily in a day, or even a week. But over the long-term, it is going to be hard for that company to sustain growth and higher prices if the company is failing.  

 

Now ultimately if you could learn all these practices and traits, you would become a better trader for it. The best traders I have ever seen out there have strategies that fit from both long-term and short-term perspectives. There will be periods in the market where one set of strategies will do better than others because of the market environment. So, diversifying yourself will only benefit you. But you need to know where your strengths and weaknesses lie as a trader. Finding your place in the market, and strengthening that position before you branch out to others could greatly improve your time in the market.  

 

Fed Balance Sheet

Fed Balance Sheet

Posted on by tyler@vanttrading.com

The Impending Federal Reserve Balance Sheet Reduction 

 

As we approach our first FOMC Meeting of 2022, we are faced with the growing possibility that this may not be the same Federal Reserve that we remember from 2021. How do we know this? Because varying members of the Federal Reserve won’t shut up about it. Now that Jerome Powell has officially received his renomination and finds himself once again at the wheel of the SS Titanic, we suddenly cannot seem to find our market sugar daddy anywhere. Powell has seemingly gone from Market grandmother who hands you a crisp $100 bill whenever you see her, to a shrewd, stingy, curmudgeon that complains that you still owe him $10 from years ago. Over the weeks (and frankly months) we have consistently heard the hawkish members of the Fed squawk about the need for a more aggressive tightening of monetary policy. With the market pricing in the likelihood of 4 rate hikes in 2022 (God help us if true), we have lately started hearing our first rumblings about the reduction of the bloated balance sheet this Federal Reserve has hidden in the back of its’ closet.  

Yes, believe it or not, the Federal Reserve Balance Sheet CAN go down in size, though it may drag the market kicking and screaming with it. For those who are scratching their heads at what this is all about, let me first make sure we are all on the same page here in terms of the contents of this Balance Sheet Bonanza.  

 

The Federal Reserve Balance Sheet Assets: 

As of March 2021  

  • 60% ($5 Trillion) of the $7.69 Trillion in Assets the Fed owned were US Treasuries. 
  • $2 Trillion were in mortgage-backed securities (remember those fun toys?). 
  • The rest was loosely in loans to member banks through repo & discount windows (irrelevant) 

The Federal Reserve Balance Sheet Liabilities: DOLLA DOLLA BILLS used to buy those assets 

As of March 2021 

  • $2 Trillion in currency notes 
  • $5.3 Trillion in deposits 

 

Ever since Covid crawled its’ way into our hearts and minds the Fed ratcheted up its’ buying of Government Securities and has inflated its’ balance sheet to staggering heights. Below is a nice little representation of the growth in Fed Assets since 2008 (when we tried QE for the first time). This chart comes from https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm 

    

Did QE even work? That is a whole other question for another time and another bottle of whiskey, though most signs point to a resounding NOPE. But for now, let’s talk about 1. How the Fed can reduce its balance sheet 2. How much should it reduce by? 3. What the impact of this could be. 

How can it reduce its’ balance sheet?  

There is two main ways the Balance Sheet of the Federal Reserve can shed some pounds. It can allow its’ treasuries and securities to reach maturity and, instead of then reinvesting/rolling over the funds into new securities, keep the cash out of circulation (thus reducing its’ assets and liabilities). Or it can actively sell those securities back into the secondary market. Now each is obviously differing in how aggressive they want to be. To sell those securities back into the market could…complicate things. There is a little thing called supply and demand to worry about and if they flood the market with treasuries, they could cause a nice little explosion in rates. However, some argue that since the yield curve has been flattening, and many of the securities in the Fed’s backpack are long-dated, they should sell their longer maturities to try to raise long-term rates. IF the Fed is going to reduce its balance sheet, we still have no idea HOW they are going to go about it. Maybe we will start to know more on January 26th after the next Fed meeting. 

I do want to note that the Federal Reserve HAS tried this maneuver once in the past….and only once. In October 2017 the Fed started a runoff (albeit in a mouse-sized portion) of $10 Billion a month. Over the course of 2018 and 2019, it managed to gradually raise this and managed to lose some weight in the size of $600 Billion; a paltry sum compared to what we need to shed now. At this time markets were…..mixed. Eventually, the Fed had to stop this runoff in the face of mounting market pressures and due to overshooting the drop in Bank Reserve Balances and resume asset purchases. 

 

So, if we end up deciding to lose some dead weight, how much should we lose? Well, the average from what I am seeing (and what Goldman Sachs Analysts seem to agree upon) is a new Equilibrium of $6.4 Trillion in assets (we currently sit at almost $9 Trillion). This would bring us from a whopping 36% of nominal US GDP back to the pre-covid levels of 21%. Now what I have seen from Goldman (and frankly I am not even going to try to attempt to do the mental math and brain gymnastics required to come up with my own number) is that for every 1% of GDP in asset runoff/sales we should experience a 2 Basis Point Rise in the 10-year Treasury Yields. So (and this is about the best math my candlestick-soaked brain can muster) for the 15% of nominal GDP in assets we need to lose, that should move the 10-year about 30 Basis Points. This would have roughly the same impact on rates as 1 rate hike. If you want to see a picture of Goldman’s Public Calculation, I left it below. 

Now, who knows what our market’s overlords will decide to come to the FOMC meetings. But I can promise you this, the market is NOT the economy. And it is NOT the rates. The market is a whole other beast, and we may say a temper tantrum from the market as a result. And despite what your magic eight ball might make you think, no one knows where this market will go. This is a year that we expect volatility to spike and risk management to be essential. So we are going to have to play doctor and continually take the market’s temperature to determine how hot-headed our stocks are getting. But don’t expect the market to be thrilled about any Fed action that takes free money from them. The market may attempt to find the new Powell put (the point at which he will turn the money spicket back on). Only time will tell. All I can assure you is that this is going to be a hell of a ride. 

How to Journal Your Trades and Why It’s Important

How to Journal Your Trades and Why It’s Important

Posted on by tyler@vanttrading.com

https://tradeproacademy.com/trading-journal/

As I’m sure you are aware, 90% of traders lose. One big activity every trader should take in order to be a part of the 10% is to track and journal every trade you take. Knowledge is power in trading and you must take every loss as a learning experience that is the only way to get better. If you learn to accept losing, our trading career will be a lot smoother.

One website I use and many traders use to journal and track their trades is tradervue. It’s free to create an account. What you will want to do is import the trades you made for the day and then once they are important you can go through each trade and make notes about them. What you did wrong, what you did right, what your levels and thought process was for the whole trade. You will want to note everything so that when you go back to look at it you know exactly why you took that trade and what you could have done better. That will reduce the number of same mistakes you make so that when it comes again you can make money from it instead of losing money. This website also allows you to track your performance based on the inception and see how you progressed as a trader. It’s always fun to see your profit graph go down and as you learn it will slowly start rising up. It will give you some extra confidence and it will allow you to actually see graphically and physically where you stand as a trader and that you are progressing. I recommend also adding a screenshot of the chart so you can see exactly the trade setup you made and it will allow you to recognize the trading layout and visualize what you need to avoid or notice.

It is very important to track your trades because it will give you details beyond what you just see on your statements. It includes your traders’ mistakes and what the market condition was like in that period of time. It also allows you to see what your strategy and thought process was. All of that is important and why the 10% of traders are successful. They analyze their trades and learn from their mistakes and losses so that they don’t make the same ones again and reduce the number of losses. At the end of each week or day go back and see what you did. Notice any common problems or strengths. This will get you in the right mindset and allow you to grow as a trader. It is what will separate you from the 90%.

Penny Stocks vs. Higher Priced Stocks

Penny Stocks vs. Higher Priced Stocks

Posted on by tyler@vanttrading.com

 

https://www.thebalance.com/factors-driving-penny-stock-prices-4072794 

Why try penny stocks? Are there benefits to trading penny stocks over more reputable and expensive companies? First, what is a penny stock, any stock that trades sub-penny up to $5. These are Typically small-cap companies, meaning companies with a cap under 2 billion. While a 2 billion dollar company might sound great, in terms of the market that is a minnow. These companies are some of the worst possible companies in the market. Most of these companies are doomed to long term but keep in mind 3 of 4 stocks follow the overall market, so know where you are within the market overall.  

Why trade these if I just said they are the worst companies in the market, because that’s GREAT? That makes these stocks extremely volatile and Great to TRADE but a Horrible INVESTMENT. Meaning, that if you are a swing trader move on, if you are looking to buy 1,000 shares of a stock at $.05 for $50 and hold it until it goes to $100 and becomes the next apple, move on.  You are going to get burned these stocks will go 0 before they go to $1. Although these stocks have a much lower barrier to entry due to low price and can have exponential price movement over mid and large-cap stocks. Berkshire Hathaway will take years before its 6 figure per share price tag moves 20% let alone 100%, although Penny Stocks daily move percentages in the hundreds and thousands of a percent a day. Think about it, after good news what is more likely for Berkshire Hathaway to go from $321k to $642k a share or an inflated penny stock to go from $.10 to $.30 after it has been promoted and pumped up.  

As you see there are benefits due to low cost and volatility but if I say not to invest how do you trade these, SCALP. Look for big after-hours movers, as well as stocks pumped up on BS news and momentum trade. Levels can sometimes be hard to find with these stocks and execution especially short can sometimes be difficult due to thin liquidity. The safest way to trade is to momentum scalp the MEAT of The MOVE. DO NOT try and find that tops and bottoms as typically liquidity will be on the decline and you can get stuck in a position. When these stocks have a huge overnight run after being a declining penny stock for months or years odds are it’s on a BS promotion. Look for a breakout of highs or lows with large momentum backed by large volume. As soon as you see price hesitation of volume die, take your money and RUN! 

How to Overcome Over-Trading

How to Overcome Over-Trading

Posted on by tyler@vanttrading.com

https://www.simple-stock-trading.com/major-risks-of-day-trading/ 

 

Overtrading is one of the main reasons why traders fail, and the thing is the people who overtrade never really realize they are and if they do realize they don’t know how to stop themselves from doing it. The mentality of individuals who overtrade is that they think they need to be in everything and always be trading. That is the only way to be profitable. That couldn’t be further from the truth. Below are a few ways to overcome that problem and get your account under control. 

  1. Overtrading comes from being too emotional and attached. If you start getting anxious and yelling at the computer or making trades that you didn’t plan then walk away. Step back and go for a walk until you have gotten that out of your head. If it doesn’t go away, then stop trading for the day. Not trading is better than being in the red.  

 

  1. Have a max stop loss for the day. If you don’t have a cap then you could keep trading until you have lost half of your account value. A good number that I use is if I lost 5% for the day then stop because that could grow quickly. Then you start trading because you need to make back what you lost and that leads to revenge trading and it creates a snowball effect of mistakes and losses. 

 

  1. Don’t trade out of boredom. That will lead to you hunting for signals and plays that you didn’t prepare for which will then lead to overtrading and unnecessary losses. Find your plays for the day before the market even opens and have your levels picked out. That will keep you from overtrading and only trading what you prepared for and expected.  

 

  1. Lastly, don’t let the fear of missing out get into your head. You will always miss trades and that is inevitable. You won’t catch every trade. But if you let that control you then you will start taking a ton of trades just because what if the move is the best move ever and you miss out on it. Well if it’s not you just got a loss that you shouldn’t have and it leads to more problems. It’s better to miss out on an opportunity you aren’t prepared for than to take the trade without proper research or risk management. That is trading with your emotions which is the biggest reason why traders fail.  

 

If you can learn to control your emotions and stick to your trading plan then you will be able to control your trading and keep it in check. It ultimately comes down to being prepared for the market before it opens. So, block some time out for stock research and write down your levels because that will make the biggest difference whether you overtrade or not.  

Emotional Trading and How to Separate From it

Emotional Trading and How to Separate From it

Posted on by tyler@vanttrading.com

https://tradingkse.wordpress.com/2010/11/06/trading-psychology-how-to-think-like-a-trader/ 

Trading can be an extremely emotional experience for many people. Especially those who are trading for an income. As they feel pressure to make a certain amount of money in a certain timeframe, they risk emotional and overtrading. There are many ways to avoid this though, first, start trading for fun. Trade for the sake of learning a skill not as a means of survival and it will be much easier to trade level-headed. Second, never trade with money that you can’t afford to lose because you will lose. Do not expect to become constantly profitable for 9 months to a year. Treat a hobby as it should be treated for fun, enjoy what you do not tie stress into it.  

With that being said we know it is unavoidable to trade without stress, so how do you alleviate it, as you would any other stress. #1 Rest, if you were up all night with a family emergency, don’t trade the next day. #2 Refuel although trading is not physical a good breakfast, and being awake and alert is critical. No one is productive when they are hangry.  #3 PREPARE The night before and the day off you should be scanning your markets and tools and have what you are trading. You should never be frantically flipping through charts once the market is open. #4 Stick to your plan. Whatever you prepare to trade is what you should trade. Do Not second guess or stray from your initial plan. #5 Recoup Find your release, exercise daily. Every day you should have a physical release and de-stress of your body. Most important Exercise and meditation.  

 

Beginner Guide To Setting Goals

Beginner Guide To Setting Goals

Posted on by tyler@vanttrading.com

Why Goal Setting as a Trader is Vital

Goals. They are these things that were harped on in school, by teachers, parents and many of those life “gurus” you may see online or in person. There are many coaches, athletes, professionals and leaders that say that not setting goals can set your back farther than you can imagine. In the book Fundamentals of Sport and Exercise Psychology by Alan S. Kornspan, he argues that “Goal setting is one of the most important skills taught to athletes in order ot help them achieve optimal performance.” Athletes like Michael Phelps set goals for themselves and those goals help drive them. Michael Phelps said that if he had goals and he came up short, he would readjust them and hopefully get there sometime in the future. He also says that it was important to set goals that he focused on and wanted to achieve and did not worry about what others thought he should be doing. He set goals that were what were best for him. Phelps said that he and his coach had goals set for him to accomplish and they would go from step to step to get there. Michael Jordan wrote about goals in his book I can’t Accept Not Trying: Michael Jordan on the Pursuit of Excellence. He said he had always set short-term goals and that each one of those were steps or successes to the next one. Some of his first goals were as a kid and they were simply becoming a starter on the varsity squad.

It is not just athletes that set these goals and use them to pursue greatness. Businessmen and businesswomen, and anyone who wants to perform in a competitive environment use goals to grow and further themselves from their field. Traders are one of these key groups of people that operate in a highly competitive and ever-changing environment. Your performance as a trader rests solely on your shoulders and without goals, getting better can be that much harder. Goals can be used to track your progress, plan for the future, and better lay out where your focus should be. Goals allow you to better allocate your time and maximize your growth. Setting proper and appropriate goals can only help you in the long run, so why wouldn’t you take the time to set the realistic goals for your trading?

What Kind of Goals Should You Set as a Beginner

SMART

If you are a new or beginning trader that is still just trying to get their profitability legs underneath them, or if you think you could be performing better in the markets, then effective goal setting is definitely something you should focus on. A driver that does not have a road map of some kind is sure to get lost if he is not familiar with the road before him. There are numerous books and articles out there that you can research into how to set goals, but we will tell you that setting SMART goals is definitely a help.

S- Specific- you want to be clear with you goals. Simply saying “I want to make more money” is vague and has no “juice” behind it. Here take this $1 bill, you made more money. Also saying “I want to be better at trading”. Ok well how? Think of answering the Who, What, when, where and why in this section.

M-Measurable- Again simply saying I want to make more money is not going to help as much. Having a goal like “I want to make $3,000 in the month of September with a win% over 50% and a risk:reward ratio of 3:1 or better, now that is a measurable goal. Now you can ask yourself before every trade, is this going to help me reach my goal and is it within my goal parameters? You can now also measure and track your progress toward you goal along the way.

A-Attainable- Alright now real talk, these goals have to be realistic. If you are a new trader with little capital  and you say “I want to make $1,000,000 in my first year of trading”. Alright calm down. I know that it is good to have motivation and be confident, but setting these unattainable goals can discourage you in the long run. Now don’t make the goals too easy. Setting the right level of goal is key and requires you to look inward and do your research. These goals need to motivate you without later crushing your spirit if you don’t reach them.

R-Relevant-     You need to make the goals relevant to what you are going. The goals need to align with your mission and vision. Setting unrelated goals that don’t align with your vision may only cause confusion and frustration. Is it the right time to set this goal? Is the goal worthwhile to set? Are you the right person to reach this goal?

T-Timely-         Set that target date. Don’t leave it completely open-ended. Saying I want to make “X” amount of money from trading in the future can be helpful. But if that is the only goal you have, it will not give you any sense of urgency. You need to have a date you want to reach certain milestones so that you can make sure you are making the progress along the way.

Setting these SMART goals is simply one guideline you can use to make sure they are effective and powerful goals. Now we are not saying that you shouldn’t have these overarching “vision goals”. Saying subjective things like I want to be a master of trading, or I want to be financially free, or I want to be a millionaire from the markets, or even just I want to be a successful trader, can still be good goals. They keep your mind right and on the empowering path. Trading can be discouraging at times so it is good to have this vision.

As a new trader it is imperative that you set goals that align with what you should be doing. Set goals to help develop good habits in trading that will benefit you in the future. Compounding good habits is a powerful tool. Set goals that help set you on the path toward getting better. You don’t want to set goals to try to create shortcuts to making money. You want to set goals to help make you better as a trader and the profits will naturally follow. Now setting monetary goals and trade result specific goals is fine too, just make sure they are suited to you.

Examples of Some of the Goals of Our Traders

We asked some traders what some goals they set as new traders and just what some goals they set in general are. Here are some of the many varying results.

  • I want to have a win% over 50% in my setup A, a win% of 60% and above in my setup B, a win% of 30% and above in setup C (and so on).
  • I want to make $10,000 in the month of June.
  • I want to be on my computer and doing research by 7:00 AM est every day in the month of March.
  • I want to write a detailed review every day after the market closes over the next two weeks.
  • By September I want to have made enough money in trading to buy my wife that purse she wants for her birthday.
  • By the end of the year I want to have my trading account balance be greater than “X”.
  • I want to add 3 new plays to my trading arsenal by the end of the summer that I feel are consistent and tested.
  • I want to have 1 new automated trading strategy trading live this year that is consistently profitable every week.
  • I want to make a positive return in the month of August.
  • I don’t want to enter any trade with less than a 4:1 risk:reward ratio this week.

And so on and so on. There are many different types of goals you can set. And some guys set more overarching and long-term goals as well as goals for the day. The point is they all know where they want to be going in their trading and they take the time to make sure they are taking the steps necessary to get there.

Reviewing Your Goals Effectively

Now simply setting goals, either reaching them or not, and then moving on won’t necessarily cut it either. After ending a period of goals, you need to review those goals and determine whether they are appropriate goals. If you did not reach them, determine why. Look back and see what things may have set you back in reaching those goals. Maybe you realized you took some trades that didn’t fit your parameters, or maybe you made some mistakes you didn’t realize at the time. Or maybe you just set some unrealistic goals for the time and environment and you need to review your goal setting. Looking back and making sure you are setting the right goals is crucial. Don’t worry!!! Not many people will reach all of their goals. If you do achieve of your goals, great maybe you really did knock it out of the park, or maybe you just weren’t ambitious enough with your goals. Try upping them for the next period. Review review review. So make it a goal to set some goals this week. Even just a few. It will feel good to check that off your list and the more you do it, the easier it will get! It will take time at first but like trading, with repetition it can get easier. If you don’t always feel like it, just go through the motions anyway, your body will still build those habits you need. So go out! Set forth and set your goals!

$TRNX Short Fade

$TRNX Short Fade

Posted on by tyler@vanttrading.com

 

https://thedailycoin.org/2019/05/25/every-bounce-in-tesla-stock-can-be-fearlessly-shorted/ 

 

On July 16th of 2019, I had a very profitable trade that I wanted to explain more in detail on why I took it and how it played out. TRNX is a technologies company that was gapping up pre-market on news that they were granted an extension by NASDAQ to reach the $1 price requirement and they completed their first commercial sterilization of Cyanobacteria. One very important key to trading catalyst winners is that you must look back in the history of the company to see how it has reacted to that type of news before or big gapping news in general.  

After taking a look at the history of this stock, I noticed that back on March 3rd of 2018 it had gapped up hugely. But, shortly after the market opens it can’t hold its gains and just faded the whole day and closed near its low, way off from the highs. I’ve noticed that any time it has gapped up, it never holds. After noticing that, you also want to see if there is anything else on that company that might hinder its spike ability. For example, this stock had an active ATM (At-the-market) and it was well below the $.70 conversion price of its convertibles. There were many things that were against it so I was very short-biased. Once you determine your bias you will want to find important daily resistance and support levels and where you expect to short it and cover. Also, one thing to note was that the daily chart and company were dead. It was at its lows and had a hard time rallying back up and there was a ton of shorts involved. There was a possibility of a short squeeze I thought so I didn’t get in until a few minutes into the trade after the trading has calmed down.  

I drew my levels and created a plan. This ended up being one of those plays that faded all day, as expected, and I had stacked trades and kept shorting on spikes into resistance. Then you will want to slowly cover into the fade. The stock opened and instantly dropped, I figured it was longs taking profit and it would eventually come back up and test some resistance. Three minutes later it came right back up to a strong pre-market support I had drawn and I executed my first short as I saw some buyers exhaustion there. Again, this is a trade I expect to have fade all day so I was in no rush to exit. My mental stop loss was a break of the resistance bought into. Around 40 minutes later it rallied back and came up and tested that same resistance I shorted on earlier. I took a second position short and added to my first after I noticed it was having trouble breaking and respected that level. Finally, as the stock was getting into lunchtime I noticed it rallied back to that same short level on low volume and since it was during lunch and there weren’t many traders playing it at the moment I had a strong feeling it wouldn’t have enough power to break that level so took a third short. That is when I expected the afternoon fade and expected it to then come back to near the pre-market low and near yesterday’s close. My mental take profit was $.35 cents but would slowly cover my position into the fade. The price had some support for the day at $.4252 and around 2:00 EST it tested it again so I covered a third of my position as insurance in case it held again. After I saw it broke, I knew it would then be a strong break so I covered into the momentum and when people were shorting. I covered a couple of minutes later into some pre-market support and after it broke that I covered the rest of my position at my ultimate goal near pre-market lows. That was a 30% short trade and is a perfect example of an overextended afternoon fade.  

  

 

 

The $AWX Supernova

The $AWX Supernova

Posted on by tyler@vanttrading.com

Small priced, low float, pump and dumps, and supernovas. These are some of the terms you might here when seeing stocks that move like this. These are typically shady companies with small stock floats that usually trade below $1, but anywhere from $1-4 may qualify. These companies do very little in terms of trading shares and price movement. However then comes a new piece, usually not significant, or a pump up from someone, or maybe there is no catalyst at all. And following this, the stock goes supernova. The low share count of these stocks makes it easier for large players to manipulate and drive the stock higher, making it a momentum scalper’s dream, but also a nightmare to those who aren’t experienced in trading them.

AWX is one of the most recent examples of this. First, let’s show you the daily chart of the move we are talking about for those who don’t already know of it.

Yeah. And that isn’t even showing premarket prices. Now let’s see how high this went premarket.

Yep. This baby went crazy, as many of these stocks have done in the past and will continue to do. Now obviously with these moves can come a lot of trading opportunity for you day traders who like these hyperactive, fast movers. Now many times the stocks will have a news catalyst that may drive them higher and bring traders’ attention to the stock. Things like winning a contract, patent disputes, court rulings, new products, investments, or even just shifts in what they are making (we are looking at you blockchainers). However, AWX really did not have any news releases prior to this move. It just kind of started moving. And the more it moved, the faster that pace quickened as more traders started trading it.

The First Wave of Moves

Let’s look at the charts and potentials of the trading prior to the largest move and following downmove.

So this is a more reasonable look at what many of these low float runners do before they top off. YES we know that this is looking back in time and trying to analyze the best entries which is monday morning quarterbacking, but looking back through these and identifying patterns will help you find better entries the next time around.

As we can see this upmove was more controlled and choppy, with a gradual rise with pullbacks and spikes along the way. There was a pretty decent trendline that the stock could not hold above as it grinded higher. Keep this trendline in your mind for later. It is also important to note, for you people that may have watched this over the three days and were trying to short it while it ran, that it never managed to break premarket lows. This is a pretty big deal to many because the fact that it can’t do it, shows that the sellers were never really in control. Now trading these may require a fair bit of anticipation because when they do break, you need to be fast in many cases but regardless. There was never enough selling pressure to make you think this thing was ready to go down.

Some possible trades in this, and there are many many trades in this depending on who you are as a trader, are noted by some arrows. Buying these for an overnight gap can work if the stock finished strong. So for example that first Tuesday that the stock moved higher on. The stock closed at the high of day. The momentum is strong and there is buying into the close. Although not always, there is a chance that this buying strength translates into a gap higher overnight. And we got that all 3 days the stock closed near highs, and even on the day after as well. However keep in mind that the higher this thing goes, the more risk you carry taking a position overnight because there is more room for it to hurt you if it does gap down. All it takes is the stock to announce a secondary or a news piece and that stock can tank overnight. Also you run risk of a stock being halted by the exchange if it is really nutty so be very careful with holding these for long. It is considered a more intermediate to advanced move. One of the other trades you could have taken is buying the breakout to new highs every day for a scalp. Anytime that stock broke the highs marked by arrows it continued higher. This does not always work but watching a stock trade as it approaches the highs can give you better insight into how it is behaving into that key level.

The Big Premarket Move

There is what the stock did on that big blowout day. And it did it all premarket and after hours! So sometimes some of the best price action may be during the extended hours. Now how you decide to trade moments like these varies per trader and we won’t dive into that. What we will cover about this day is leading into the open. You can see that selling pressure going from about 8 AM est until the open. That stock topped at 36 but opened around $24! That is some heavy selling pressure into the open. Now many traders love the profits shorting these back down. If you like doing this you need to make sure you limit your risk because who is to say that thing wouldn’t rebound on the open and go to $40. We have seen many traders get blown out by being stubborn in their shorts.

But that selling pressure provided a good idea of which direction you may want to be biased in when watching this stock for day trades. And it had an immediate opening flush as Longs panicked out and took profits quickly. There were some dip buying chances in there. But largely at this point after that opening move, most traders can smell blood in the water and most traders are looking to short pops (with caution). And you can see that thing grinded down the rest of the day. And as you will see, it continued lower in the days following. So once a momo stock like this is broken and the momentum is no longer to the upside like that, chances are it is done its’ move for now and you will have a few days of selling pressure. There can be some more pops in there but for the next few days, the sellers are in control. As we show you below.

So while these plays can be very fun to watch and can provide a lot of opportunity for day traders, they all come with their own new and extreme set of risks. Fast moving, illiquid stocks can slip you fast. Some may be halted by the exchange and open back where they started, absolutely crushing longs. It all depends. One other thing we noted is that according to a few seeking alpha articles, the company came out during this move and disclosed a large investment by MintBroker International. They said that MintBroker owned about 60% of its’ 3.19 Million outstanding shares as of May 4th (prior to this). That is a big deal! That means there are even less shares out there in the average traders’ hands and this thing can really move! And MintBroker controls a large portion of this stock’s float. Now we don’t know what they did with their shares or if they were even involved in this move, but this is something experienced traders will take note of when they decide to trade this stock.

We aren’t telling you how to trade these, or even that you have to, but rather they are worth studying because patterns repeat themselves and traders can make and lose money both long and short during these moves. It all depends on having a trading plan and respecting your exits and entries and doing the necessary review to improve.

The $HMNY Reverse Split

The $HMNY Reverse Split

Posted on by tyler@vanttrading.com

There are many companies that make a splash in the markets or in the news, only to find failure a short time later. These stocks that tend to reach headlines, social media trends, and overall watercooler talk to this degree tend to present traders with numerous opportunities to make money. So when these stocks and plays occur, it is important that we review them and learn from them. HMNY is one of those stocks as of late. In this post we will breakdown who HMNY is, for those who haven’t been paying attention, and what the trade we took was.  

For Those Who Don’t Know

HMNY, or Helios + Matheson, bought a majority stake in a company called “movie pass” in August of 2017. This is a company that was trying to be a subscription-based system to go to the movies. With move pass you can pay a monthly fee, and virtually go to the movies as many times as you want in that month. There were obviously some other stipulations and string attached but that was largely the business model and when the model started out, it was only $9.95 a month. A month later, they announced they already had over 400,000 paying subscribers and in October of 2017 they stated their projections were the exceeding of 3.1 million subscribers through August 2018. This naturally caused some volatility and stir in the stock and over the course of about 1 month, the stock went up over 1000%. This obviously became a hot topic to talk about as many people came out on both sides of the argument as to whether it was a sustainable business approach and what the true value of the stock was.  

Now I don’t really care who you are as a company but trading up to that degree in that span of time, is almost always going to be overblow. And in the span of another month, by the end of October 2017, the stock had reverted back to only being up around 300%+ since the beginning of September. This is still a major move for such a small priced stock and HMNY was not done being in the news just yet. Over the following months the news reports from HMNY started to have less and less of a reaction in the stock price and traders and investors alike started to realize one major thing, Movie Pass was not making money to cover what they were spending. 

At various points in 2018 Movie Pass stated that they were changing their model/system. They changed their prices numerous times, the movies offered, the process to getting your tickets, and everything else they could think of. They tried various things as the stock price slowly traded back down to $0 time and time again until eventually they decided to perform a 250:1 reverse stock split. This bring us to the specific trade we are going to cover.  

The Reverse Stock Split Short

So HMNY was trading at pennies, trading as low as .08 just prior to the reverse split. Movie Pass was clearly not retaining that growth and popularity it had projected and was not making enough money to sustain how much it was paying for movie tickets. Investors and analysts were looking into their cash flow and statements and seeing that they only had enough cash on hand for a few more months of operation. So in an attempt to possibly boost the stock price back up to a reasonable price and maybe get some volatility back and save the stock, HMNY performed a 250:1 reverse stock split near the end of July. Now this isn’t the largest stock split in history but trust me, it is much larger than normal.  

What is a Reverse Stock Split?

As we have covered in lesson plans, a reverse stock split is what a company decides to decrease the amount of outstanding shares there are on the market to bring about a larger stock price. They typically do this is they want to decrease share float or if the stock price is getting too low for the company’s standards, as well as a variety of other reasons.  

So lets give an example:  

Suppose company A has 1,000,000 shares oustanding and the stock is trading at $10 a share. That means the company’s value, or market cap, is $10,000,000 (10X1,000,000). So now say that the company decides to do a 2:1 reverse stock split. That means that for every 2 shares of the stock that exists, there will now be one. So instead of 1,000,000 shares there will be 500,000. Well technically the company fundamentals have not changed at all. Nothing has changed about the company, so theoretically the stock should be trading at the same market cap the next day. So theoretically the next day the stock should be trading at $20 a share, still giving it a $10,000,000 market cap (20X500,000).  So if you had 1,000 shares of that stock at $10 prior to the reverse split, afterwards you would have 500 shares at $20.  

Back To The HMNY Trade

So theoretically, even though they have performed this crazy reverse split, nothing has changed about the company itself. So if you think it is going to $0, that theory should still technically hold true. Now we say technically because with such a large decrease in the share count comes much easier ways for shorts to get squeezed and for a stock to be manipulated higher or lower, if the share count is lower. And just because a company has issued a reverse stock split does NOT mean it has to go back down right away if at all. So there are still risks associated with trading these so aggressively. You never know, someone could have come out the next day and stated their intent to acquire HMNY and caused the stock to skyrocket. So if you want to, understandably, avoid some of this risk, there were still day trading opportunities GALORE in the following months shorting this thing.  

However, a company like HMNY that has such low cash flow, does not have the capital to keep the lights on for much longer, does not have a sustainable model, and has been absolutely crushed by the markets is a stock you should definitely watch. This reverse split caused HMNY to open up around $14 the next day, with the previous close being $21.25.

Now I know this is Monday morning quarterbacking but this is a trade that many traders, including us, had felt was worth putting on and it was very successful trade. As we write this blog HMNY has since returned back to trading at .07 a share!! So if you saw the news of the massive reverse split and you had capital to spare, you could have tried to put on as many shares short as possible. Some traders got over 1,000,000 shares short easily prior to the reverse split. Because for every 1 million shares you had short after the split you would only have 4,000. That following day the stock closed around $10 and you would have made 50%. If you very confident in your short you could have held that short EVERY day since the reverse split and not experienced a green day ONCE until August 6th, but by then the stock was trading at .06.  

Now again we are not saying to simply blindly short these reverse splits. And we aren’t even saying that if you wanted to play this stock you had to enter prior to the reverse split. But after the split occurred if you like to day trade these momentum, fast moving, low priced stocks, then this is a stock that provided endless opportunity. These are the plays that come around every once in a while that can provide opportunity even in the summer months.  

Here is a chart showing the post split price action the following days. I mean look at that selling.

And here is a more zoomed in chart of the 3 days with the most day-trading potential. I mean you could have simply shorted the break down of lows every day and been fairly confident in your entries.