Penny Stocks Are Back...

What's up, everyone? All right, in today's 
episode, I'm going to break down my trades  
from the morning. The theme yesterday was false 
breakouts. We had so many stocks, I lost count,  
that squeezed up and then did this dramatic false 
breakout and ultimately ended up being a complete  
round trip. A round trip is when we have a 
stock that rallies up and then comes all the  
way back down to basically the same price where 
it started. Now, the false That's round trip. Now,  
the false breakouts that we had yesterday looked 
a little bit more like this. We had a stock that  
would squeeze up. It would then dip down for a 
moment. I was like, "Okay." Looking for that first  
candle to make a new high. This candle opens. 
It starts squeezing up. Then it breaks the high  
of the previous candle. It pushes a little 
higher. And then suddenly, out of nowhere,  
we get this big sweep of selling, maybe short 
sellers, and it flushes back down. And by the end  
of the candlestick period, closes down here, which 
changes the candle from being green to having a  
big topping tail and being a red shooting star. 
And the problem with a candle like that is that  
typically it's also on high volume. You've got 
high volume on the move up, which is what we like.  
Light volume on those first two red candles. 
And then here, during the moments when this  
candle was green, it had high volume cuz people 
were buying. But as it reverses, all of a sudden  
people are bailing out. And so now you've got a 
high volume rejection. So, we don't like seeing  
those big rejections. It's a false breakout. And 
we had a lot of them yesterday. Now, yesterday  
I was attributing those false breakouts to the 
fact that we had dispersed attention. It was hard  
to tell which stock was really obvious. We had 
from yesterday, if we jump on the screen share,  
WXM, which had been the biggest leading gainer 
of the day. We'll scroll out here so you could  
see it. I'll make this a little bit bigger on the 
5-minute chart. So, we had this really big move  
on WXM here, where we rallied up, we pulled back, 
we popped up. But one of the challenges with it,  
really from the very beginning, as you can see 
are the topping tails. So, it kept popping up  
squeezing higher. It was looking really good and 
then all of a sudden this dramatic false breakout.  
So, right there this goes all the way up to 10 
then it comes all the way back down making it  
not quite a round trip, but darn near close. If we 
looked at it on the 1-minute chart, it's even more  
dramatic. Then you've got a couple more topping 
tails on this. So, we had this one, we had this  
one, we had this one, we had this one, and we had 
this one and then it just continued to go lower.  
So, this was the obvious stock yesterday, but it 
was not easy to trade. But you know what became  
the number one stock yesterday? It was PLAG. 
Look at this thing. From 60-70 cents a share, it  
rallies up to a dollar 50, halts up, then dollar 
70, halts up, halts up two more times, three more  
times in a row, then it drops, then two more halts 
up, 1 2 3 4. Then this is such an unusual pattern  
right here. Look at this. It It halts up at 380, 
390. It opens lower and then halts up. Then it  
opens lower and pops up and then halts down. Then 
it opens lower and halts up right here at three,  
and then it resumes at 520. What in the 
world? Then it goes 1 2 3 4 more halts up,  
three halts down, back up. You know, the person 
who came up with the idea of circuit breaker halts  
never envisioned that happening. That was not the 
intended consequence. The intention of a circuit  
breaker halt, initially, was to prevent flash 
crashes. So, for those of you guys who aren't  
already uh well-versed in circuit breaker halt, 
there there's actually a lot to learn about them.  
And one of the things that I have always found 
interesting is that the halt levels can be  
different even when you have two stocks that are 
the exact same price, your halt levels can be uh  
can be substantially different. And that makes it 
really confusing. So, a lot of beginner traders  
struggle with these halt bands. Now, I've done 
a a bunch of episodes on circuit breaker halts.  
Um so, what I'll do here um I'll I'll give you a 
little crash course on how they work. So, why was  
this stock, for instance, halting as frequently 
as it was? And the reason it was halting as  
much as it was is because it was priced in the 
previous day below $0.75 a share at the close.  
So, I've got this blog post I'll just show you 
right here. This is on WarriorTrading.com. So,  
um we're going to scroll down here. And right 
through here, you can see um this table.  
This breaks down the way the halts work. It's a 
little confusing on that, so I'm just going to  
jump on the whiteboard and and make it a little 
easier to understand. Because this actually  
continued to be an issue. We'll just jump back 
on the screen share for 1 second. This continued  
to be an issue at the opening bell today on OFAL. 
OFAL ends up having the same kind of thing. Halt,  
halt, halt, halt, halt, halt. Three halts 
up, four halts down. It's It makes it very  
difficult to trade. Five halts down, actually. 
So, this is the way the halts work. Okay. So,  
if you have a stock, so we're going to just 
do circuit breaker halts. Forgive my fast,  
messy handwriting. I should have started over 
here, but that's all right. Okay, so if a stock um  
on the prior close was below $0.75 per 
share, the stock will halt every $0.15  
going up or down if it happens within 5 minutes. 
So, within basically a 5-minute spike uh  
would create this halt if a if the spike went up 
$0.75. A stock above $0.75 cents up to $3 a share  
will halt every 20%. That's very different. And a 
stock above $3.00 a share will halt every 10%. And  
then you've got tier one securities which halt at 
5% increments, but we don't usually trade those.  
Um so I'm going to not going to include that 
right now. So here's the interesting scenario.  
You could actually have a stock you could have 
two stocks side by side that are both trading at  
um three let's just say $3.00 per share right 
now. And on the first stock, they're both at $3.00  
a share. The first stock, the prior close was 
$0.74 and the other one was $0.76. So basically  
one was just below the cusp right here and one was 
just above it. So the one that was just below it,  
the halt going up, so I'm going to do limit um 
LULD limit down limit up. Um the halt up is um  
3.15 and the um halt down LULD is um 
2.85. All right. So 15 cent halt bands.  
So if the stock squeezes up 15 cents within 
less than 5 minutes, then it will halt. Now  
you I could go into a bit more detail about 
how that reference price is calculated. It's  
the average price over the last 5 minutes, but 
basically if a stock spikes up within about 5  
minutes or less um then it'll halt. This stock was 
at $0.76. So it's in that second tier right here,  
which means it's every 20%, which means the halt 
up at even though they're both trading currently  
at $3.00 a share, they're both up similar 
percentages. This one will halt at $3.60
and this one and then it'll halt down at $2.40. 
Wow. So that can move a whole lot more before  
halting versus the first example. And then we have 
this one here which let's just say uh yesterday  
was $3.01 and it will halt. It's still at $3.00 
at 3:30 and going up or uh $2.70 going down. So,  
here you've got three stocks all the exact same 
price, but because of the circuit breaker rules  
will halt up and down at different levels 
because of these thresholds. So, if you don't  
understand how halts work, well, hopefully 
you do now after after just watching this.  
It'll give you better understanding. If you didn't 
understand how halts work, you would be confused  
about why you could have stocks of similar price 
that halt at different areas. Now that you know,  
you're empowered. So, between the hours of 9:30 
a.m. and 4:00 p.m., which is when circuit breaker  
halts are active, you've got to be really careful 
trading a stock when the previous day's close was  
below $0.75 because they will halt very quickly. 
And as you can see from the case um of OFAL today,  
but even better from PL AG yesterday, you could 
have a stock that halts up at $2.80 right there  
and resumes at $5. That went up 100% during 
the halt and there was nothing you could do.  
If you were short, there was nothing you 
could do to get out sooner. If you're long,  
there was nothing you could do to take profit 
sooner. It simply resumed at $5.00 a share.  
What was happening while the stock was halted is 
there was an auction going on behind the scenes.  
And so, likely what happened was 
initially it halts up at three
an unrealized P&L of the $4 resumption, and 
if they're in 100,000 shares, or you know,  
whatever at a $3 average, they're down 100 grand. 
Let's say that presents them with a margin call.  
The broker now takes over their account and puts 
out buy orders to cover. And so now you've got  
buy orders going out at 4, 410, 415, 425, 450. Are 
there actual long bias traders getting in up here  
and adding? I can't imagine they would. So this is 
fueled, essentially, that move by short covering.  
And so shorts get squeezed and it goes all the 
way from $2.80, whatever, up to $6 a share.  
Now, on the one hand, this is clearly a 
big win if you were into the long side,  
but it's also a bit of a gamble because you 
just don't know what's going to happen while  
the stock is halted. You could have a halt up 
as we had right here at 385, and then it shows  
a resumption down here at 334 330. You don't know 
why. All of a sudden, a market maker, or whoever,  
puts out a big sell order to dump shares. Could be 
an insider, we don't know. And so, unfortunately,  
trading during halts presents an additional level 
of risk. There are times where I'm okay with it,  
um but on lower priced stocks like this, it's 
especially difficult because of how quickly  
the stock will halt it will will get halted. So 
at this point here, it's a $6 per share stock,  
right? But it's still halting every 15 cents up or 
15 cents down because of the halt bands, which are  
calculated by the previous day's closing price. 
They don't change during the trading session. So  
this could have gone all the way to $100 a share 
in theory and still been halting every 15 cents,  
which would make it nearly impossible to get in 
or get out of the trade before you're stuck in  
another halt. So for that reason, it wouldn't 
surprise you that I actually prefer trading in  
the pre-market session when there's no halts and 
in the after-hours session when there's no halts.  
Although it did mean yesterday I missed this 
entire move on PLAG, which was fueled by short  
a short squeeze. So, there are times where I see 
these moves and I'm like, "Oh, I really missed  
out." But, let me give you a little hint. Check 
the volume. Notice how the volume declines as it  
goes higher. Because there's not enough liquidity 
when you're halting back-to-back that quickly  
to really move in and out with any reasonable 
share size. And so, the volume was actually the  
highest during the pre-market and declined as 
the day went on. WXM yesterday, we had higher  
volume pre-market, one high volume candle at the 
open, and then it declined. Today, OFAL, we had  
higher volume pre-market right here, and volume 
declined after the open. So, right even though  
it went higher, and that's a divergence. The price 
went higher even though the volume was declining,  
and I usually consider that to be a red flag to 
take my foot off the gas and slow down, which is  
exactly what I did. So, on OFAL today, this was 
not the first stock I traded. It was actually  
it was the last stock I traded, however. And OFAL 
did give us one nasty false breakout right there.  
So, we'll break down this stock first because it's 
sort of the most interesting. Okay, so, this stock  
ends up being up a little bit in after hours 
yesterday on relatively light volume. So, one of  
the scans I use here is my after hours top gainers 
scanner. So, you can see OFAL, where was it?  
Let's sort by sort by float. OFAL, maybe it 
wasn't up enough. Let's just double check on the  
double check on the chart how much it was actually 
up. There was a teeny bit of volume there,  
that 100,000 shares. But, let's see, 
the total percentage change after hours,  
we were up as much as 18%, but then, yeah, by 
the end of after hours it was only like 8%. So,  
not much of a gain. And then all of a sudden, 
boom, 6:05 a.m., this thing starts ripping.  
Chinese Hong Kong stock with no news. Starts 
ripping, starts squeezing. And if you remember,  
of course, we had Socket on Monday, SCKT, and 
that was it Monday or Tuesday? I can't remember.  
Was this just yesterday? No, it was it 
was Monday, I guess. But anyways, so SCKT,  
we had this move from $0.50 a share to $4 a share, 
also starting at, you know, kind of Well, this one  
actually started at 9:00 a.m. But nonetheless, 
this one actually had news. Um OFAL didn't,  
but in any case, OFAL starts the squeeze, traders 
are thinking about Socket from Monday, wanting to  
catch that next big move, and they jump on it 
quickly. And so you end up getting a pullback,  
a pop, a pullback, a pop, a pullback, a pop, a 
pullback, a squeeze all the way up here to 260,  
and all the way up to 280. So you get this really 
nice move, and at 7:00 a.m. I said, you know,  
topping tail, topping tail, topping tail. I think 
I'm going to just wait. Ends up doing a little bit  
of an inverted head and shoulders pattern here and 
selling off. And then we had resistance at 220. I  
was watching that level closely, and I said, if 
220 breaks, that's where I want to be a buyer.  
I was very clear about that. It comes up here, 
we get a break just for a second, I had my hand  
on the buy button, but it stalls out, and so it 
kind of it almost went, but I said here, you know,  
my issue at that point, and I said I was clear 
about this as well, was that, you know, we've  
already had um sort of this rally back up. I'm 
just I'm worried that it's going to reject here  
because it's it just feels a little extended. So 
I really wasn't sure it was going to work right in  
this area. So anyways, it goes up there, it sells 
off again, it comes back up here, double tops,  
and this essentially is an inverted um head 
and shoulders pattern. As we broke right there,  
it was game time. And so that was my first trade 
on OFAL. We got this squeeze here from uh 220,  
roughly, all the way up to a high of $3.50. And 
I was adding into that squeeze. I took a bigger  
position, I sized up pretty heavily, and we got 
a nice move. We had about 7 million shares of  
volume in 2 minutes. It dips back down here, 
and then I added back 60,000 shares right here  
because I had a cushion on the stock, and it does 
a nasty rejection. It drops down, and with that,  
I flipped from green on it to red. This is 
my P&L for the day. $17,617 as you can see.  
And this trade right here on this last trade 
was a 60,000 share position where I sized up  
heavily looking for that move higher, and 
well, that didn't end up working very well.  
So, it ends up going sideways here, dipping down, 
and then the open halts up 1 2 3 times, and then 1  
2 3 4 5 times down. Now, we're halted back up. And 
so, even in the halt right now, it halted at $2.26  
and showing a $2.43 resumption. So, the 
problem with that is that, you know, you just  
while these are halted, you can't do anything. 
You're stuck. So, that makes it very difficult.  
And if you're short, you can certainly be in 
a real jam. So, anyways, OFAL a bit choppy,  
but for those of you guys that that traded it 
in this candle, that was your cleanest candle.  
And congratulations if you got green on it cuz 
that was a really nice move. So, I thought this  
thing was going to really keep going. At that 
point, it was the leading gainer and whatever.  
So, that was OFAL. Now, we also had RMCF. RMCF is 
a Hong Kong tech stock? Nope, it's Rocky Mountain  
Chocolate Factory. Wait, Rocky Mountain Chocolate 
Factory? This thing went up like 150%? Yeah,  
you mean the same one you see like in the 
airports and stuff? Yeah, the same one. So,  
this thing ends up making this huge move here 
up 268% and I traded it. I punched it, locked  
up about $18,000 on that move. Now, this one I 
traded a little bit differently. So, this one,  
rather than trading on on OFAL, I wouldn't say 
I was trading the backside. It was above volume  
weight average price, but I was trading a curl 
back up. That's a curling setup. On RMCF, instead,  
I was trading really the very front of the move 
right here as it was still cranking higher.  
And the way I approached it was I noticed 
the 200 moving average was at about a $1.70  
resistance. That's what I sort of thought. And 
so, as it came up here to a $1.70, I was like,  
"Well, it's probably not going to hold." 
Let me show you on the 10-second chart. Um  
and then all of a sudden we saw uh big bidders at 
about a $1.66 to $1.68. And I thought, "You know,  
uh I think this is going to hold." And so, then 
I started adding right here. Adding, adding. It  
goes all the way up to 230, 240. Selling, selling, 
selling, taking profit. It ends up coming back up  
to a high of 250, which was awesome. And just with 
that move I booked $17,000 of profit right there.  
I didn't go back for it. Um actually, is that Now, 
where was it? Um I was right in here watching for  
a possible curl like OFAL. Um and it came up 
to 190, but it wasn't quite able to do it. And  
as you can see, a little bit later it tried 
again, but I was just like, "I don't know."  
My issue with this one was that unfortunately big 
shooting star candle, right? I love that ascending  
volume, but then it topped out. And then on the 
5-minute chart, it was a giant shooting star.  
So, I felt like this rally here, these topping 
tails and this curl was all sort of in the shadow  
of that. But I saw I thought the same thing 
about Socket on Monday. And you know, that  
did go higher. Right? So, we'll switch this one to 
the 1-minute chart so you can just see it better.  
So, on Monday we had this initial pop. Um now, it 
didn't rally all the way back up, but it it went  
to four, then dropped back down to $1.60, and we 
got this curl back up to $3, which was still 100%  
right in there. But again, that initial topping 
tail is is pretty bearish. So, in any case, um Um,  
RMCF, those were the big moves. And then SPRC, 
$300 scalp on that. Just tried to break the ice,  
but it didn't really work. The theme 
today was definitely penny stocks.  
Not necessarily true pennies below a dollar 
share, but stocks that were cheaper and um,  
that was where the focus was. And I think that 
was really driven by the move on PLAG yesterday.  
So, with that, I'm locking up a green day here. 
I'm grateful for it. No trades in my small account  
today. Um, not I mean, I could have. I just I 
wasn't totally confident these would work. So,  
uh, you know, and by the time some of them were 
working, I was like, well, I can't really add in  
in my small account up here. So, anyways, that's 
fine, but um, a good day here and we'll be back  
at it first thing tomorrow morning. Reminder, as 
always, trading is risky and my results are not  
typical. So, please manage your risk by practicing 
in a simulator before you ever put real money on  
the line. With that, I'll see you guys at 7:00 
a.m. Eastern Standard Time tomorrow morning.