A Lesson on How to Manage Risk in a HOT Market...

What's up, everyone? All right. So, today we're going to talk a little bit about the challenge of trading in a highly volatile market. This week has been pretty insane. A lot of the stocks that have been moving up have had no underlying news catalyst, and so it's really hard to understand why one stock could go up 2,000% and yet another one goes up 200% and then tanks and is red on the day. They both have no news, so in theory neither of them should go up, but one starts and keeps going and the other stops and starts falls out. Why Why is that? You know, I can't kind of get my head around it. If you knew what stock was going to go up 700% or you knew that it had a really strong catalyst, you would feel confident being more aggressive and holding longer. But when they have no news, how do you get aggressive? Well, but then you just saw five stocks with no news go up over 1,000%, so I guess you kind of have to get in the mindset of trading what's moving. It is a challenge, and with these big ranges, it's very easy to get on the wrong side of the move. And that's kind of what happened to me today on FGL. So, you can see that big P&L of being down $17,291.27 on FGL. It's a stock that pops up on the scanners. It has no news. It You know, you should You should easily You could easily say, "Ross, this You're an idiot for trading this. It had no news. What were you thinking? Of course you're red on it." Well, well, you know, hold your hold those opinions just for a second because you'll see some other stocks that also had no news that made some really big moves. So, on FGH or sorry, FGL, this stock pops up this morning and initially it has some great momentum. Initially, it pops up here to 220. It pulls back. First pullback works and it squeezes up to 350. Second pullback right here, I jump in and I'm like, "Here we go. We've got another foreign listed stock. All of a sudden this thing's up over 100%. It's becoming obvious. The volume is coming into it, and so I'm thinking this thing's going to work. So, as it goes up to four right here, I'm adding, and then during this pullback, I'm still adding because I'm thinking this is now the next pullback here for the next leg higher, and what I didn't really see coming was what's about to happen next. Right about there. Yikes. So, that I ended up losing 50 cents a share on a 35,000 share position, approximately. So, I lost 17 grand on that trade, and I was like, "Gosh." And part of me was like, "Well, maybe I should maybe Hold on, let's see. Maybe this will rally back up." And it didn't. It didn't rally back up. It just went lower. Okay. So, you could argue, "Russ, never trade a foreign listed security. Russ, never trade stocks with no fresh news, and days like today wouldn't happen." Okay, fair enough. And although you can see that this was a pretty bad trade, and there's been a few of them, I think we should take a look at EDHL. EDHL today, also a foreign listed security, Hong Kong, ended up going from about $4 a share to $18 a share with no news. There's no news on this one. And so, you know, this is where it feels like we're getting mixed signals. Why is it that FGL failed and this one worked so well? Now, I don't I don't have the answer. When I took my trade on FGL, EDHL was pulling back. So, I thought attention was going to shift off of EDHL and switch to FGL, but it didn't. So, what happened on EDHL? Oh, well, this stock initially pops up and pulls back. First pullback, it works, it squeezes up. Right down here, it pulls back again and pushes higher. So, this is a very similar setup as FGL, right? The first pullback, the second pullback. And then it drops down, goes underneath the volume weighted average price, and for a moment it looks like it's over. It's going to come all the way back down. And then, and I don't know why, but it squeezes from seven all the way up to 10, pulls back, deep dip again, then rips up to 10:30, pulls back again, breaks over, hits 10:50, pulls back, goes to 11, goes to $13 a share. The thing just keeps going higher. Pulls back for a little bit, consolidates, and then goes all the way up to 15, all the way up to 16, all the way to 17, all the way to 18. But, was I below max loss? Was I not allowed to trade it? Well, maybe I should expand my window. Because you can probably tell that this is only showing you part of my P&L. There it is. There's the whole window. So, as you can see here, I did end up getting a few good trades today. So, all right, maybe I sucked you in here a little bit with that loss. But, here's the way I'm kind of looking at this right now. In this market, it is very easy to get on the wrong side of a move. And it's very easy to take a big loss. It happened to me today. It happened to me on Tuesday. On Tuesday, you guys saw me take a $27,000 loss. However, what's very important is that I am not This is very important. I am not taking full risk until I first have a cushion on the day. So, by the time I took this $17,000 loss, I was already at 65,000 on the day. So, yeah, that dropped me down to about 48,000, but I was still well in the green, I had the cushion, and at that time, when I was holding FGL, I could afford to take a little more risk. I took the risk and it didn't work out. I don't know why that one didn't work out. We had others that were so similar that did work, but for whatever reason that one didn't work out. I took some risk on it, I got stopped out. Same thing on Tuesday. Tuesday I was up, let's see, what was I up? I was up 50,000 on the day and then I took that higher risk trade on CCTG and it failed. And I took the loss. But I still walked away well over my daily goal. I was still in a great position. So I think the big moral of the story here is to avoid a big $17,000 red day, which I don't want to have happen, I can't start with full size. I've got to start by being a little bit more cautious. Now, for me even even cautious size could still be 15 or 20,000 shares if we're going to be honest. I'm still taking pretty big positions right now with full size being, well, I guess my biggest position today was probably that position right there on FGL of 35,000 shares because most of the stocks I was trading were a little bit more expensive, which meant I I just couldn't buy as many shares or afford as many shares or it didn't make sense to. But nonetheless, what why don't we now take a step back and look at EDHL? Because EDHL clearly was the big winner today with $76,000 of profit on it and QH was a smaller winner. So these all kind of, you know, settle me at about $62,000 in the green today, which um no doubt is a really solid green day. It's not as big as yesterday. Maybe momentum is waning a little bit, but here's something interesting. Pretty much all of this move occurred pre-market. Yesterday on DSY, you'll notice that half of the move was pre-market and the other half carried into the open. And so I made about 120,000 on it pre-market and it was a little cheaper, so I was able to take bigger positions and that helped me make more money. And then uh I added an extra 20 grand after the bell rang. Today really all of the attention seemed to be uh focused on the pre-market action, which is good in a way because during pre-market we don't have market orders, we don't have halt levels. So, we can end up actually seeing bigger moves and we're not as likely to see those really big jackknife candles. Not to say we can't because we can, but they're just they're more common after the opening bell. So, here's how I traded EDHL. Now, if you already tuned into the small account recap for today, you know that in the small account I bought this pullback right here. That was a nice little pullback. I didn't trade it before then. I I just wasn't really sure about it. Um my issue with EDHL here, um in the small account, to be clear. In the small account, my issue with it here, um or or sorry, in this area was that it hadn't yet given me a pullback. So, I was like, "Ah, I just can't take the risk." In the small account, I've got to be really careful. And this also kind of speaks to like a whole 'nother level of risk management. Small account, big account. Small account, I don't want to take any losses, so I'm only taking trades I got like 99% conviction in. So, I'm taking a lot fewer trades, a lot fewer. But, I'm having and maintaining really high accuracy. In my big account, even on my first trade, I might take it with smaller share size, but I'll take a trade that's a little bit riskier, but I think if it works, it could be a nice winner. And that's exactly what I did here on EDHL. So, on EDHL in my big account, my first trade was right down here at 565. That was my first entry. So, as it squeezed up, it hit 565, it dipped down for a second as you can see by that bottoming tail. It then surges back up and I add right there at 565, 5,000 shares. I add another 5,000 as it squeezes up. I add another 5,000 as it breaks over six. And all of a sudden we get the squeeze up to 650. I add another 5,000. We get the push up to seven. I'm taking the profit off the table. And as it peaked right up here, I already had about $30,000 of profit. Nice. So, then it pulls back and I'm like, okay, awesome. Now this thing is really moving. So, then I felt comfortable taking a trade in the small account on the next pullback. So, we got a pullback trade right there. Squeezes higher, that's great. Then it dips down, breaks below VWAP, and then it traps those short sellers here as it rips back through the high, and as it squeezes up right here, I'm watching for the break through this high of day. So, let's see. So, then the next trade on this was adding at $8.40 right here. It hit this high of 850, it micro pulled but does a micro pullback right there, surges higher, and I get that little trade from 850 up to 9. Entering with my hot keys. Taking profit up there, it dips down, pops up, dips down, then squeezes back, adding back, taking profit, and started to kind of stall out up in this area. So, we had a double top here, we tried to break, we kind of failed, we kind of broke, then we kind of failed, and we ran into a little bit of an issue. So, I did keep trading it as it was squeezing higher, but I reduced my share size because I recognized the 200 moving average right here at about 1376. So, because of the position of the 200 moving average, I said, I'm going to have to really be careful on this. I don't want to end up getting myself in a situation where I'm in this too high and right at that resistance point. So, we ended up sort of struggling right around the 200, and it was choppy for this sort of long period of time, and then finally it pulls away right here. And so, as it pulls away right here, I got a couple more trades in this area, and then we squeeze up here from 15 up to this high of 16, 17, and 18, but we kept having these topping tails. And so, I was making less and less and less on each of my trades, but I felt like I was taking the same amount of risk, and so then I got to a point where I said, I'm done. And I my last trade of the day today was at let's see what time was that. Um 8:57. I didn't take any trades past 9:00 a.m. So, 9:00 a.m. is right here. And so, you know, I didn't take any of these trades here and I didn't trade this backside coming back down here. I wondered if it would pull back and squeeze up and then I said, you know, it's already 16 17 18 dollars a share. I think it's too expensive. You know, yesterday it made more sense to get that continuation higher on DSY cuz it was cheaper, but this one I think it's too expensive. So, I said, no, I'm going to leave it alone and then at the open PPC B started to pop up and I thought, ah. >> [sighs] >> Well, that is tempting. It's an inverted head and shoulders pattern, but I sat on the sidelines. I didn't trade it. I didn't want to jump in. QH, this one popped up earlier. I got a little trade on it right through here. Starting to pop up again now. You know, if it could break through nine or 10, it gets very interesting, but we're just not it's just not happening. So, the moves today were a little smaller than the moves from yesterday. And then tomorrow we have the SpaceX IPO. So, I don't plan on trading the SpaceX IPO in my small account because it's going to be too expensive. I still don't know whether or not I'm going to get shares allocated to me through Schwab. I put in the request, but I don't know if I'll get them. So, at this point I'm still you know, considering day trading it as the moment it IPOs if we get some good price action. But, it's you know, it's ultimately to be determined what kind of price action we get. So, I kept thinking this week that we might get a good space catalyst and that has not happened. Interesting. Um so, for the time being going into tomorrow, I guess I'm kind of expecting more of the same, which is you know, foreign listed stocks and you know, potentially you know, Chinese stocks moving with no news. But, I want to make sure that if I'm going to get aggressive, the stock I'm trading is obvious. Uh EDHL was obvious this morning. It became the leading gainer. It it got some nice action. Um and then it kind of rolled over. I thought maybe it would pull away up here, but it it it it wasn't able to. So, I'm looking for the next stock between, you know, $4 and $6 that I can get in down here and ride a potential wave of momentum. I thought it was going to be FGL. Um and so I'm bummed that I'm red on that one. Uh but, you know, it's it's hard to predict them. You get in on the pullback and it's important to keep a tight stop, especially if you don't yet have a cushion. So, uh at least I kept the stop as tight as I did and was out, you know, around three and didn't hold all the way down to here cuz then I'd be down like 40 grand on it. So, this is where I finish the day. I'll remind you as always that trading is risky. My results aren't typical, so I want you guys to manage your risk and take it slow and always practice in a simulator before putting real money on the line. I'll see you guys bright and early tomorrow for the SpaceX IPO. I'll start trading at 7:00 a.m. The IPO will probably be late morning or early afternoon. All right, so with that, I'll see you guys tomorrow.