It's All About Your Profit/Loss Ratio!!

What's up everyone? Welcome to day 16 of
my small account challenge of growing a
$2,000 account using Charles Schwab as
my broker. Today was nearly a red day. I
took two trades, accuracy 50%, one
winner, one loser. All right, but here's
the good news. Because I had a positive
profit to loss ratio, I'm able to finish
the day in the green. Your profit to
loss ratio is the comparison of your
average winners versus your average
losers. So, as long as you win more on
average than you lose, then even at 50%
accuracy, you're a profitable trader.
That is how you set the bar low and make
it easier to achieve profitability.
However, what happens for a lot of
beginner traders is that they don't cut
their losers quickly the way I typically
do. They end up holding them and hoping
it turns around, maybe even adding to
the loser. And then what ends up
happening is when you finally stop out,
your average losers are big. Your
average winners, well, you take your
profit kind of quickly cuz you want to
lock it up, are small. And now you've
got an inverted profit to loss ratio,
which means you need to be right greater
than 50% just to break even. And now,
without knowing it, you've set the bar
higher and higher and higher to achieve
profitability. Your profit to loss ratio
is one of the most important metrics.
Yes, accuracy is important, and of
course we all strive to have high levels
of accuracy where you're right more than
you're wrong. But at the end of the day,
even a trader with low accuracy can be
profitable if you've got a positive
profit to loss ratio. So, let's go ahead
and jump on the screen share and start
breaking down today's trades. All right,
so it is day 16 and as a reminder, all
of the profits from these small account
challenges gets donated to charity.
You guys have the opportunity to help me
increase that donation because I add an
extra dollar every time you hit the
thumbs up on the episodes in this
series. We're now at over $353,000
of money raised, and this is part of the
50 state children's hospital goal, a
goal of donating money to a children's
hospital in every state here in the
United States. So, we've done pretty
well so far. I think we're at 28 or 29
hospitals, but we're not finished. We've
got more to do. So, we'll keep up with
that. Thank you guys for the thumbs up.
Today, day 16, we had nothing obvious
yet. Now, we did have a stock that was
up 98% as you can see right here, CRNX,
but it's $83 a share and it's a 100
million share flow. Now, you might be
curious at how a stock is able to go up
that much you know, with a float that
high and with a price that high. So, if
I back this up here and just go full
screen, you're going to notice something
interesting about the chart. Whoa, what
kind of chart is that? So, all of a
sudden it's trading
right sideways here at like $83.50 a
share. That's because the company has
been bought out. They've been acquired.
Now, I didn't actually look at the
the headline of the the exact buyout
price. The buyout price is almost
certainly a little bit higher. Um let's
see, $10 billion. All right, well, what
does that equal per share?
Um $85 a share. So, you may wonder,
well, wait a second. If they were bought
Now, number one, if they were bought out
by by Vertex um Vertex Pharmaceuticals
at $85 a share,
why isn't it trading at exactly $85 a
share? And so, the issue here is that if
you bought it right now at $83.50
a share and the buyout goes through, you
will receive $85 a share at the time of
the buyout, which is $1.50 a share of
profit per share. That's great. 10,000
shares would be $15,000, right? That
seems like a no-brainer. But, the market
is pricing in a little bit of risk.
There is some risk that the deal doesn't
go through. Could be, you know,
regulator, antitrust, monopoly stuff.
Could be during due diligence, whatever,
whatever, something happens, the deal
doesn't go through. If the deal does not
go through, where's the price going?
All the way back down here to $41 a
share. So, with a 10,000 share position,
your $15,000 of profit is against like
$400,000 of risk. It's not a good
profit-to-loss ratio. Now, there will be
some people that may take the trade.
They may use options to hedge against
the risk of it going down by buying
puts, but all said and done, it's really
not a great risk-to-reward ratio.
And so, it doesn't trade at exactly the
buyout price, but it trades darn close
to it. And so, there's no real
opportunity to trade that at this point
because the value of the company has
been
really effectively determined by this
buyout. So, CRNX was our leading gapper,
but that's a no-go because the price,
the float, and it's not going to move in
price because it's a buyout. The next
one down was TDTH. Now, it's $2.86, 2
million share float. All of that is
fine, so we'll take a peek at that chart
really quickly. So, TDTH, TDTH right
here. This one, as you can see, made a
move that started in after hours and
then double tops pre-market and starts
to come back down. So, when I'm sitting
down, which is at about 7:00 a.m.,
it's right about here.
This had already peaked. So,
unfortunately, I missed the move. It was
early and mostly after hours. So, that
one was out of play. Then the next one
we had was TNMG. Well, you can see from
that, it's a little too cheap for me. My
minimum cutoff is generally around $2 a
share. Then we've got SUGP here at
$1.13, little cheap. BJDX, $1.40. TDIC,
that's the next one that's at a price
that we could maybe consider. So, let's
see. Let me just grab this, drag it back
up. TDIC, unfortunately, you'll see here
again a big pop at like 4:00 a.m. and
then it's been unwinding and coming back
down. So, kind of a bummer. So, we
didn't have anything that was obvious.
And on the one hand, that's
disappointing. And on the other hand,
it's actually okay because it means that
as soon as something pops up it looks
good, it gets front and center
spotlight. So, everyone pays attention
to it. And today, we had Silo. Silo pops
up and immediately starts squeezing. It
goes from 7:30 to 8:30 to 9:00 all the
way up to 9:50. So, as it starts moving
up the scans, I'm looking at Silo and
I'm thinking, all right, this is one
that's worth taking a stab on. It's a
relatively low float here with very high
relative volume started to peak up or
perk up right there. It had breaking
news right here that tied in AI and
Nvidia. However,
>> [sighs]
>> the Nvidia developer program, I'm not
sure how substantial this news is. It's
not like a partnership with Nvidia
corporate, you know, it's just enrolling
and using one of their tools. But
nonetheless, that was a catalyst.
So, the stock starts to pop up here. It
pulls back, it pops up again, it dips
down, and I punch my order right here
looking for the break through nine. We
got the break of nine, we got all the
way up to 9:50, and I took the profit.
It ends up selling off right here, then
it comes back up, looks like it's going
to break VWAP, and it rejects, and then
that kind of spelled the end of the day
for this. It didn't continue higher in
spite of that news headline, which was a
little disappointing. So, total profits
on one trade, entry at 8:81 looking for
the break of nine, exit at 9:03 after it
hit 9:50 but wasn't able to go higher,
and I locked up about $476 of profit.
Okay, not bad. And then we had trade
two. And that was on CLRO. Now,
arguably, CLRO actually is held up far
better than um than the first trade, but
was not easier to trade for me. So,
we'll look at the chart on this one.
CLRO pops up, pulls back, it pops up,
and I uh took my starter here and I
filled 36 shares.
Uh, it's so disappointing when that
happens. I was looking for the break
through 8:50, it ends up going up to
nine, but I only got a partial fill. It
dips down, I don't sell, I add to the
position here, it comes back up, it
double tops, and then flushes, and right
here I end up stopping out. And so I
lost I was $259
on it. All right, but at the end of the
day I'm sitting up $216 and 80 cents.
50% accuracy, but the winners are bigger
than the losers. And so right now my
accuracy has declined to about 76% on
this challenge. 39 trades in total with
30 winners and nine losers. The account
is up 930%
from the original starting balance of
2,000, that's $18,605
of profit.
So I'm doing well in all regards, but
today was definitely a small green day.
Thank goodness I cut my losses. Now,
um although on the other hand you could
you could argue that had I just held
CLRO, uh maybe I would have been better
off for it because it did end up
squeezing all the way to a high of $10 a
share.
So that's a little bit annoying. It sort
of had this first pop, it rejected, and
then it ends up rallying. Now because
this is a day trading account, I
certainly could have gotten back in. So
this was the rejection right here, then
it kind of goes sideways, it ends up
curling back up, tries, it rejects,
tries, rejects, then it kind of pulls
away, and then it kind of finally got a
move higher. I ended up trading in my
main account, we'll talk about that in
my main account recap later, but then
you get a double top here, a rejection,
and and it really was not easy to trade
either in the big account or the small
account. The stock was difficult. And so
at the end of the day, I did the right
thing by cutting the loss and jumping
out, and you know, look, survival. I'll
survive and live to trade another day.
So whether this goes to 10, 11, 12
dollars or higher,
without me, it doesn't really matter.
Taking a small loss makes it less
emotional to see what it does later.
It's if you take a big loss and you get
smoked that what it does later starts to
matter more. So, that means first and
foremost, your job is to manage your
risk. Be a hunter of volatility and a
manager of risk. That's the name of the
game as a trader. So, I remind you guys
as always that my results are not
typical and trading is risky. Have you
not already checked out a 2-week trial?
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You can click the join now button and
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the chat room. So, thank you guys as
always for tuning in. Thank you for
hitting the thumbs up on day 16 of this
challenge, and I'll be back at it bright
and early tomorrow morning for day 17.