Momo Traders

by Brady Dahl

  to like $10.28 in one candle. The rest of the day the price trickled down to about $9.30. I made a small fortune.

  Market selling the giant long drove price down so far so quickly, it probably broke through a few key technical levels, too…

  Exactly. If they ended up with 400K long at $10.79 and sold it all by $10.30, then covered the 400K $10.80 short under $9.50, did they lose? No sir. I’m telling you, I see it all the time. Clearly it’s not retail supporting the bid/ask in those moments. It’s pros taking a position.

  Massive volume in a one penny range when normally the stock price fluctuates all over the map—that’s real money taking a position. They can’t fill that short unless they fill it themselves. Am I crazy?

  Probably not.

  I know I’m not.

  You were slamming the bid in that trade, but how do you normally fill orders? Do you always remove liquidity?

  I usually remove liquidity because I’m very impatient. I’m always hitting the bid or ask to fill, which costs me money. Typically if I want to short a stock that is already starting to dump a little bit, I’m slamming the bid, because how else are you going to be in the trade?

  But I will do the opposite and add liquidity if the stock is moving up and I’m building a position. Like if a stock is at $5.20 and I’m looking

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  to short a parabolic move into the $5.50s, 111 place a bunch of orders in the $5.50s looking to get hit. Or when I’m covering—and I’m religious about this—I’ll have cover orders in below the crack I’m looking for. So say I’m short at $10, and $9.50 is where I think support will crack, I’ll have covers in at $9.41, $9.32, $9.26, etc. I’ve got them already laid out there because I want to get paid on the flush.

  But you don’t cover your whole position on that flush, do you?

  No, just a piece. I always hold some in case it keeps going lower. Then I “hand fill” what’s left, meaning I enter orders in at the time I want to cover. And I always hide my size, too. If I want to cover 47,000 shares, I might show 1200 or something.

  What increments do you use when you scale entries?

  It depends on liquidity, volume, and the size of the stock. Say PLUG

  trades 12 million shares a day, it's currently topping out around $7.12, and I think it could go back to $6.70s. . I’ll take 4K shares short at $7.04 just to get my feet wet. Then say it pops up again and hangs a bit at $7.12. I’ll double to 8K shares short. Now say it ramps up to $7.25

  or $7.30. I’m probably teasing and adding up to 15K or 16K shares total. Now I have a quarter of the 50K share position I’m ultimately looking for at a $7.14 average, so I go on hold there. I go on hold and watch for a stall on the chart, a little l־min breakdown. If I start to see that, now I love the trade. Once it cracks through that 7.14 area and starts to look heavy, I short three cents below the bid with the full amount I m currently holding, so I go from 16K shares short to 32K.

  And why pick $7.14 to double down? Is there a technical reason?

  That’s where I’m now moving to green on the trade. Fm famous for slamming the bid to get a heavier position when the trade goes green for me. I always double down. And I’m still not afraid to chase it even more. Let’s say it starts to crack that huge number at $7.00 flat. I’ll add another 18K shares to get to a full size of 50K. But immediately I’ll have covers in at $6.81, $6.72, etc. But yeah, I add to winners all day.

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  So while most traders talk about getting short when the stock moves from green to red intraday, you’re slamming the bid when the trade goes red to green in your account…

  Exactly. If you’re going to get another 20 cents to the downside, you better double your position right there, right now. That’s what I think.

  That’s also why I slam stocks so hard when they break trend to the downside, even if they’re still green.

  What happens if that stock, instead of cracking thru $7.00 to the downside, decides to bounce instead?

  Perfect question. This is what costs me money. The stock doesn’t crack and my average is now something like $7.1127, and it’s bounces off that damn $7.03 back to $7.13…

  And you’re in full size now…

  Right. If it moves 20 cents against me, I’m down 10 or 11 grand.

  That’s when it’s an immediate decision for me. I either take 25K

  shares off the table by removing liquidity—which is not cheap but allows me to get my head right and wait for the next move—or I just know it’s going to crack soon and I hold the full position. Truth is, that’s a tough one. If it doesn’t crack and I don’t trust it, I lighten up.

  It’s the worst thing in the world when you pile in short and then it moves against you.

  If you do decide to lighten up, do you always take half off ?

  No, I might only take a fourth off.

  At what price? Even?

  No, it’s at a little bit of a loss at that point. Very rarely would I ever cut a full-size position until it went against me. I only lighten up when I Have pain. So typically I’d wait five to 10 cents before taking some off.

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  What do you think about suggestions from social media?

  I think it’s nice but they’re not actionable alerts. Some pumper might put out a Tweet at 8 a.m. saving PLUG has a new contract, etc, but it’s all horseshit. He’s pumping it. But at the very least it’s information you can take and make your judgment from there. Basically social media provides you with more stocks to look at.

  What’s your most reliable trade setup? Or most profitable?

  Without fail, there’s one setup I love. Over-extended trend break. It’s a momentum stock that has just run 200 or 300 percent, and it s finally topping out. It’s the first time it’s making a substantial move from green to red, and it’s ready to fade. It’s breaking trend. I am mauling that stock with everything I have. I’m piling in on the red move.

  Do you cover intraday on those large over-extended shorts or look to hold overnight?

  It’s intraday, but I’ll swing part of it. And if the wheels come off the stock the next day, I’m usually wishing I had my full position still.

  How many trades do you typically realize per day?

  I probably trade six to 10 stocks a day, but probably make a hundred entries and exits per day because of scaling.

  Are you comfortable being in six to 10 trades at once?

  Yeah, but I get confused and start taking the winners off for profit.

  I would think you should do the opposite and take losers off…

  Yeah, because the winners usually get better and the losers usually get worse, don’t they? (laughs). But a guy like me, with a gambling nature, I don’t want to eat a $900 loss or a $2,700 loss. I’d rather cash in a few winners and then battle the losers.

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  How much capital do you keep in accounts?

  ETC has $250K, Wedbush has S250K, IB has $100K, and E*Trade has $100K. Anything above those figures at the end of the month, I wire out. However, if they drop below those figures, I don’t add funds.

  How big are your positions generally?

  Typically a stock priced at $100 or more, I won’t have more than 5K

  to 6K shares short. Stocks from $10 to $60, I’m not afraid to get 10K

  to 20K. Stocks under $10, if the liquidity is amazing, trading five million shares or more a day, I’ll take 80K to 100K shares, no problem. But it really depends on the action and how I feel that day.

  Why do you think you’re so biased to the short side?

  Well, let me tell you what’s wrong with the long side. If I’m short at $5

  and the stock goes to $5.20, I still know I’m right in the trade. The price action may not agree with me for the moment, but I know fundamentally that stock is still trash. But if I’m long a stock at $5 and it drops to $4.80, I have zero faith in that trade. I’m not exactly sure why. Maybe it’s a character flaw. But I can’t buy more. I
can’t do anything. I just hate that trade now. I’ll dump that stock at $4.80 all day long, yet I’d add to my short position at $5.20.

  Are you typically flat at night?

  I’m probably flat three nights a week with a minimal position the other two nights. Usually I only hold something overnight that I feel might gap down the next morning. If I cover it all intraday and then that stock gaps down too much the next morning, I just can’t chase it. Or worse, I might lose the borrows overnight. Basically I hold overnight for fear of missing out on more downside.

  When you are in a trade, are you analyzing every tick?

  Every tick. Every print. Every piece of the chart. I’m totally engulfed.

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  Do you look at your P&L?

  I do. Because when a trade ramps against me, I like to know what my patience just cost me. I get disgusted with myself. I’m analyzing everything else in a trade and my P&L is no different.

  Do you set a target before you place a trade?

  Nope. If I’m in a great short, there is no target. I’m going to pay myself all the way down until I have maybe a quarter of the position left. I’ll let that ride until I feel like the price has based a little bit, even if I end up giving some money back. I don’t have targets, because I’m so optimistic. I think the end game for every short trade is zero. I never think it can’t fall through the previous support level. I have the idea that every trade is going to pay me forever.

  In what increments do you scale out?

  There’s no exact figure, but at minimum, I’ll take profits in fifths or quarters, just to get paid. And I pick random cover prices, usually before support levels. Like if support is $5.50, I’ll take $5.52.

  What if the trade goes against you? Do you set stops?

  Not hard stops. Never. I don’t even know how to place that order. But I have an idea of where I’ll stop, which is usually if the price busts through a whole dollar or high of day or maybe a 52-week breakout.

  There are 10 or 15 reasons why I might want to stop a trade, but if it gets through that point, I’ll take it off myself. And the fills are always a little worse than what I wanted.

  But it is usually a chart dictated stop?

  Yes. But it’s also how I feel, how much pain I’m in.

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  You seem like a very play-it-by־feel type of trader…

  Absolutely. 1 lard stops are probably a good thing for most traders, but it would have taken me out of a ton of trades that 1 ended up succeeding in.

  How do you manage risk with such flexible stops? Do you have a set percentage of your account you’re willing to risk per trade?

  No, but 1 have a dollar amount I’m willing to risk. In a trade that’s not too important to me, something I don’t have a lot of faith in, I’ll only be short maybe 5K shares. If it goes against me for 30 cents, I’ll eat the $1,500 loss right then and there. It’s just a day trade that didn’t work out, so I’m agitated but move on. On the other hand, in a trade where I have a ton of conviction, something I can’t wait to nail, I’ll risk much more. Usually I’ve been fighting it day in and day out, trying to get to that magical spot where the trend breaks. In those cases I’ll risk around $20K.

  How long do you typically hold a trade?

  I can hold from 9:30 a.m. to 3:59 p.m. if necessary. Not a full position but pieces. I do it every day, and I love it. I know some guys take off their positions into the lull midday and say they’ll re-address the trade later at 2 or 3 p.m., but then around 2 or 3 p.m. there really is no re-address because it’s lower.

  It’s gone in your favor and now they don’t want to chase it…

  Correct.

  So you really let your winners run. What advice do you have for other traders who want to improve that part of their game?

  Once a trade starts to go green, a lot of traders want to pull the trigger and start paying themselves, but you have to remember one thing: longs are going to panic. You have to look at the big picture and

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  understand that when a stock fails, people are ready to bail, especially if the stock is trash to begin with. I don’t want to cheat myself out of money. If it bounces, who cares, you only gave some of the money back. I want to ride that short to the Promised Land.

  I remember one day NQ cracked and I started covering into the first wash before I noticed not only were you not covering, you were adding to your short…

  That’s the double down, my man. What’s the worst that’s going to happen if you add? Give back the money you’ve already made in the trade? Fine. I’d rather double down on a winner than do what most traders do and double down on a loser, compounding their losses.

  Do you have a set amount of profit you’d like to make each day?

  No, I’d be happy to make $500 or $50K. I’m just glad to walk away a winner. I let it trade out the way it trades out and try not to come to the market with expectations.

  What’s the largest profit you’ve made in a day?

  $131K. I made good money trading ISNS that day but more on APT, which was running with LAKE and the Ebola stocks. It had risen from $3.50 range up into the $8s, and I had been fighting it. One day I ended up short 100K shares with a $6.20 average. It started to ramp and do that nut-job, end-of-day squeeze we’ve become familiar with lately, and I lost $30K by the time I covered. But it gapped up the next day and I started shorting it immediately, building some decent size again. You could already see massive problems with the whole move into close the previous day, it had just been shorts panicking. By the time the market opened I already had 90K shares short. My profits started rolling quickly when it failed green to red that day, even though I started covering too early. But that whole move up the previous end of day was the final squeeze.

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  And the next day it gaps and craps…

  Exactly. All the momentum stocks run and run and run, and you can’t tell it it’s a squeeze or not, until that last day. The last 15 minutes where all the shorts shit themselves is where the move becomes unnatural, even more unnatural than the momo move before it.

  Did you celebrate the win, or just another day at the office?

  I think I drove up to the golf course, grabbed a beer, came home, and ordered some pizza for me and my daughter.

  On the flip side, what’s your biggest loss?

  VSR. Which was also an Ebola play. It was up like 100 percent when I started piling in short. It started showing weakness, so I added even more before it ramped toward the end of the day. I panicked and ate the loss at negative $92K. Worst part is I wasn’t even sure how I let it get that bad. Usually on my bigger losses, the stock ramps quickly against me, but VSR was a slow grind. I just froze.

  Do you remember your emotions at the time?

  Yeah, I was physically ill. But my daughter lives with me, so I have to be careful not to let her see that side of it. It’s scary because you’re so damn overwhelmed with the loss that it’s hard to emotionally pull yourself together for the people around you. Or to even fake it.

  Doubts creep up, thoughts about going broke or blowing up…

  In that moment, they do. And there’s a little piece somewhere in the back of my mind that knows tomorrow could be my last day trading if I’m a real moron and don’t respect my rules. But it s highly unlikely because I am so money-conscious, so scared of losing. That fear is what keeps me in check.

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  You’re confident you can be profitable in any market conditions?

  I’m positive I can. Every market that presents itself will be dealt with under those market’s terms. I will make money. What scares me is that I may not have years like I have been lately. It s just been crazy good.

  How do you get back on the horse after a huge loss like that?

  The emotions pass naturally. I used to be frozen for days after a huge loss. Now I can walk in the next day, spot the moves, and go to work.

  Fear is somethi
ng you overcome daily. Imagining all the bad things that could happen to you is an illusion. Reality is sitting right in front of you, making trades like you normally would.

  Have you had unprofitable years or months?

  I’ve never had an unprofitable year, but I have had years where I went sideways. I might have made $50K, and I guess it was enough to support my family, but barely. There wasn’t a single week out of the 52

  where I didn’t think, man, what am I going to really do for a job? It didn’t feel like I would be able to sustain it. It didn’t feel like the results were repeatable.

  How did you push through those feeling of doubt?

  I pushed through it by learning. I slowly got more knowledgeable about trading. Back then I didn’t even know what to trade each day. I feel like a damn genius now in comparison. I understand trading on a completely different level. But I know I still have more to learn.

  And you never gave up on trading or thought seriously about giving up?

  No, for me I would be deprived without trading, without looking at the charts or Level II. When I’m away, I go through withdrawals.

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  So vacations are no fun with you?

  It’s very hard. Very hard. The time I am able to get away the best is when I’m with my daughter. Maybe we go up to New Hampshire to ski or go to New York and just walk the streets. Then I’m able to step away. Maybe it’s because she demands it. (laughs) Do you work on the weekends?

  I do. Til get bored before college football on Saturday and immediately go to the charts and look at some of the stocks I’m thinking about for Monday. And I do it Sunday, too.

  Do you consider yourself an addict?

  Full-blown. Degenerate, full-blown addict. But a winner.

  What do you consider your defining moment in trading?

  It happened in late 2010, early 2011 when I realized I could actually see the trades lining up myself. I was following and learning from good traders, making money off what they were doing, but suddenly I started beating people to the trades. I understood it in a way I hadn’t before. The other traders are probably still more skilled than I am, but in many cases I figured out how to make more money from the same trades. The loose gamble in me can actually lead to far bigger profits when I’m in the right trade at the right time.