Momo Traders

by Brady Dahl

  Yes. Unless a new play comes out that day. Although with a new one, I usually wait until the end of the day to start playing because I am so risk averse. The stock price is probably up so much already, who wants to touch it? But by the end of the day it might produce a pattern you’re familiar with.

  At the end of the day you’re trying to determine whether or not it will gap up the next day?

  I’m looking to see if it held support and if the support was higher and higher. I also want to see if the volume is still there. The key to all these plays is volume. If there’s volume, the next day there will be follow-through because promoters aren’t going to give up on a stock if there’s still volume.

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  I see on Twitter you’ve been going short more often. When did that transformation happen for you?

  Back when I was trading OTC heavily there were very few brokers that allowed you to short. The stocks were too low-priced and brokers didn't have shares. It was all naked shorting. And shorting OTC stocks is difficult. You have to time the pump perfectly unless you want to be upside down 300 percent while paying borrow fees and the rest of the fees the whole time. So I was nearly always long. Besides, the maximum you make on a short is 100 percent, right? The maximum profit on a long is unlimited.

  But now trading Nasdaq, it seems you go short quite a bit…

  Yeah, I do. That’s strange, isn’t it? I’m not an expert on Nasdaq, so I take what I think is the easier trade. Nasdaq is so liquid you don’t need to trade too many positions to make good money.

  Easier because the companies you short are usually trash?

  It’s easier for me to see a chart that’s overextended than to see a stock that’s about to rise. In other words it’s easier to spot a stock that’s been up for five days straight with no profit taking than to see a stock that’s suddenly going to have a lot of buying come into it. To me gravity is more powerful. At some point those longs are going to take profits. The key to shorting is to have patience, which, of course, is very difficult. But avoid cherry picking the top. You don’t need to be the guy who has the best average. That guy is going to be wrong five other times where he gets killed. Play only when the trend changes.

  When I lose on Nasdaq it’s because I’m fighting the trend.

  Do you think the OTC market will be coming back into play anytime soon?

  I see spurts, and then it dies. Spurts, and then it dies.

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  What do you think happened? Was it SEC regulations?

  Every rule the SEC made was in effort to shut the OTC market down, including the pattern day trader rule. It makes no sense at all. Plus OTC stocks are non-marginable. Why? Brokers hardly even take bulletin board trades anymore, and when they do, they charge a shitload for them and there’s no rebates. They make it very cost prohibitive and difficult to trade the OTC. But I also think movies like The Wolf of Wal Street were another nail in the coffin because they drew so much attention to the scams.

  Promotions have all but disappeared…

  The OTC market is dead. And Nasdaq is too much money. The beauty of the OTC was the very low risk exposure. All I needed was $5K positions to scalp for $100 and $200 per flip all day long. It did not matter what the overall market was doing. With Nasdaq you never know what’s going to happen overnight.

  How big of an account do you need in order to trade your way?

  For OTC, probably a million bucks. At least half a million, because things were non-marginal and I would hold a ton overnight. So if you hold $200K overnight, you want an additional $200K for the next day’s trading. Depends on how big you’re trading. For Nasdaq now, I don’t even need that much because they give you huge leverage.

  But with Nasdaq you’re flat every night?

  Yeah, because I can’t predict it as well as I did the OTC.

  Do you look at your P&L?

  Yeah. They say not to look, but that’s bullshit. The reason most become traders is for instant gratification. That P&L is your instant gratification. What they really mean to say is don’t let your P&L

  influence your trade decisions, but you’re going to look.

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  Do you place hard stops?

  I use mental stops. But lately I keep forgetting to look at positions, so I should be using hard stops.

  Do you set targets?

  I just play the chart. I short at resistance and try to cover at support.

  How long do you typically hold a position?

  I’m the worst at holding. I have zero patience. When a short reaches an area of support, I’m out. I take it off on the first washout. So it could be 10 minutes. I’m basically scalping on Nasdaq like I did on the OTC. It’s scary to hold positions for long on the OTC because most of the companies are scams. I’m trying to get better at it on Nasdaq.

  You considered the worst case scenario while trading the OTC, how do you manage risk while trading Nasdaq?

  Nasdaq is a different beast. I’ve never had so many losing days in my life until I started trading Nasdaq. I’ve never taken such big losses either. My risk management has gone to shit. I’ve found myself averaging into short positions lately, which is something I never would have done on the OTC. Don’t get me wrong, I still do well with the trades I post on Twitter or in chat, because I’m patient on those, but where I fail is when it comes to boredom trading. When I’m bored I’ve been looking for something to trade instead of waiting for setup to happen. You think you’ll risk $100 and next thing you know it turns into $10K.

  Good way to ruin the day…

  Yeah. Actually the best secret is to turn on the TV, listen to music or just search porn, (laughs) Do anything it takes to curb the boredom.

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

  When I was trading OTC my goal was $10K or more a day, but now with Nasdaq I take what the market gives me. Although making as much as I did on the OTC is always in the back of my mind.

  Do you have a max loss amount per day that you’ll stick to?

  I should, (laughs)

  How much do you pay attention to the overall market now?

  That’s what I hate about Nasdaq. You have to understand all the macro shit. On the OTC all you needed to know was whether or not the promoter was still in, still sending out emails, still pumping. If he stops sending out emails, get the hell out. (laughs) OTC pump and dumps were your bread and butter, but you also traded stocks moving for other reasons, like FNMA…

  Yeah, trading is all about momentum. Don’t fight the trend. If something has trend, no matter what market, I’ll go with it.

  What’s your biggest win?

  Fannie Mae. FNMA. And also American Airlines when it was still an OTC stock. I made a lot of money trading them over the years. I had many days where I’d make $50K, $100K, even $250K on them. But the biggest one day profit was $1.42 million. FNMA was around a $4

  stock, and I came into the day with a long position overnight. It was probably around a $200K position of 50K shares, and I immediately started buying more at the open, trying to squeeze the shorts.

  What about it was a buy? Was it simply trend?

  Yeah, trend. Plus the fact that a bunch of funds were pumping it.

  When Fannie Mae was bailed out by the government it became a GSE,

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  Government Sponsored Enterprise, so all these shareholder funds are suing to get a piece of the billions of dollars of dividends the government is getting. They were pumping it up, saying FNMA should be worth $60 if shareholders do get the dividends. They were pushing legislation, going to court, etc. But basically it gapped up that day and I was hammering buys trying to squeeze every short so the chart would go parabolic. As it ramped towards the top, I still had huge buy orders in that I hadn’t canceled. The price was already beyond my buys, but I didn’t cancel because I was giving the illusion that there was huge demand. At least the market makers though
t there was huge demand.

  With live buy orders below the current bid…

  Yeah. They never filled all my orders on the bid, so I just hit the offer.

  Which, like we discussed, is how I would get stocks to go up back in the day—just send huge buys to the offer. Market makers are so damn greedy, they would just spike the price up past my buys without filling me. So I’m putting in 10K and 20K buys on a $4 or $5 stock, which is a sizable position for an OTC stock. Then right at the top, when FNMA went parabolic, I sold my entire long. Then I hammered the shit out of it on the short side and pulled my live buy orders below.

  You sold your long and immediately flipped to a short position?

  I scaled out of my long position on the parabolic move. The demand was huge because everyone thought it was going to $60. But being a longtime OTC trader, I know not to drink the Kool-Aid, so I sold into the parabolic. My strategy is that I can always rebuy if it keeps going. I always remind myself of that. But based upon my experience, I took a chance and shorted a shitload of FNMA at what felt like the top.

  How much?

  I must have had like 200K or 250K shares short near $5, near the very top. About a million dollar position. They were showing huge bids, so I took a chance and took them all out. Then the stock basically dropped to like $2.50 after that.

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  What strategy were you using going into this trade?

  Well since I already had a huge long position coming into the open, my strategy was that when I decide to sell, that stock will go down, and I’m going to short it. First I helped drive the parabolic move by not selling any at open and instead buying more. I knew that the instant it downticked, I was going to spray these guys with a huge amount of shares. When I thought it was going to top, I unloaded my entire long, like 250K shares, and then shorted 200K shares. So I took out almost 500K shares of FNMA at $5. Roughly $2.5 million. So I had just stuck them with nearly 500K shares at the very top of the parabolic. As soon as they reversed the price action and started selling I canceled my buys below that. Now the demand is gone. They thought they had a million dollars worth of buys below, but it’s gone.

  Who’s “they” in your opinion?

  High frequency trading. I know it was them, because the next day they turned the machines off. They stopped showing half a million shares size and started only showing 10K shares. They went from 500K bids to 10K bids because I destroyed them. I never saw large sizes in that stock again. They were stuck with no buyers at the top. What’s better is I still had a 200K short position as the stock fell. And I knew that when I decided to cover, the stock was going to bounce, or at least stop, because not only was I going to cover 200K shares, I was going to long another 200K shares.

  And you did that in the $2s?

  Something like that. Way at the bottom.

  How did you hold your short that long without covering? You’re typically a scalper…

  I probably didn’t cover because I was literally shaking too much to look at my P&L. (laughs) I was staring at the chart and Level II. It was just so damn smooth. It was a one-in-a-million trade. They were stuck

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  with so many shares they were trying to liquidate along with everyone else. The offer was just stacked. There was no reason for me to cover.

  What were you waiting to see on Level II?

  I was waiting to see something I’ve been familiar with for 10 years.

  And there were a bunch of fake-out bounce attempts, but I knew they were fake. Besides, I was cushioned with enough profit already that I could hold for more. Then when I covered and went long, I made sure it bounced. There was no chance in hell that stock wasn’t going up.

  You employed the same tricks we’ve discussed…

  Yeah, and it bounced to like $3 or $4. At that point I was shooting for a $2 million profit, probably held just a bit too long, and ended up giving back like $100K in slippage. Buying and selling that much size isn’t easy. Once they turned off the machine, the liquidity disappeared.

  You were shaking, yet you had the presence of mind to flip the giant position at the bottom and go long…

  Yeah, but that’s how I always traded. That was always my strategy, except this time I stepped up to the big boy league in terms of size.

  That was the difference. It was just so damn liquid, I could trade size.

  Is size usually determined by the liquidity on big plays like this?

  Yeah. I like to choose a size where if I want to, I can click a button and be out. With FNMA they showed enough size I could do that.

  After you nde it to the bottom, how far did you ride it back up?

  Right to the top. I stop trading a stock when I start to lose money back. I keep hammering until I lose. Then I’m done. Usually that’s when the liquidity is over and it’s gotten choppy.

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  So what do you do when you look at your P&L and $1.42 million is sitting there?

  I was shaking. I didn’t know who to tell. I couldn’t tell anybody. I did a screen capture and said, let’s go drink, (laughs) It was actually less about the money than the fact that I had done it. The seven-figure trade was on the bucket list.

  What’s your biggest loss?

  I forget the name of the penny stock, but I lost around $300K in it. It was a promotional mailer play that went wrong. I went long on the dip thinking they’d save it and ramp it back up, but they didn’t.

  You’re normally very good at selling as soon as something moves against you…

  I was already up around $2 million for the year, so I was very cocky, and it bit me in the ass. I was arrogant, thinking I couldn’t lose and that the stock had to bounce. But something I’m good at is screaming, crying, getting angry and taking the loss, but then starting over. I go back to my bread and butter, which is gapping stocks overnight and scalping intraday. I start making $2K or $3K a day and get back on track. Eventually I’ll make it back. And I did. Within a couple months I had made it back and closed the year up around $3.3 million.

  Have you ever gone to zero in the trading account?

  Before I took out the mortgage I was probably down to about $8K.

  How do you handle losing streaks?

  Forget the streak and remember what made you profitable before it started. Small gains. Rebuild confidence. Go back to trying to make $2K a day instead of $10K. Just aiming for $2K you’ll have good days where you make a lot more. I tell myself I need to get a couple days of green, even if that means a dollar. Then I go from there.

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  Have you had unprofitable years?

  No. Not since the first couple years.

  What’s your biggest disappointment when it comes to trading?

  Not fully capitalizing on the huge winning streak I had. I was playing so small. If I had just upped my game a little sooner, I could have made a lot more money. I was too happy making $500K a year. The moment I decided to step it up, it was easy to double the profits doing the exact same shit. I started having seven-figure years, the biggest being $3.3 million. Although I will say you have to be ready to step up your game. At that point it wasn’t about the money for me, it was about the challenge. I was comfortable financially. Who knows, maybe if I had stepped up my game sooner, I might have lost a ton of money.

  Do you have any advice for traders trying to get to the next level?

  Sounds like it was a deliberate process…

  It was very deliberate. I think the problem traders have is that they may not be financially secure yet, and going bigger brings fears of losing bigger. And you can’t play scared because you won’t correctly play the cards you’ve been dealt. Like poker, if you’re too nervous, you’ll be folding your winning hand when your opponent is bluffing. If you’re not comfortable with the size you’re playing, you’re not going to make the right calls.

  Any advice for the guys trying to start with $5K…

  It’s very difficult. If I were starting with $5K, I�
�d only be looking for $100 and $200 gains. You can do it, but the pattern day trading rule is going to make it even more difficult.

  What was the turning point in your trading career?

  When I lost nearly all of my money and realized to be successful I couldn’t treat trading like gambling any longer. Once I changed that

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  thinking, I became profitable almost every damn day. I realized you had to take the gains. Book the gains. “Let your winners ride” is only applicable to swing traders. If you re a scalper, “let your winners ride”

  doesn’t mean shit. You better be taking profits.

  The key is knowing when to take profits, because you can also minimize profits to your detriment…

  I let winners run until the chart indicates an exit. Then I just take the gains. If you do that enough times a day, it’s like a paying job. One strategy you might employ is to take small gains like that until your daily quota is met, then mess around with the other trades. But don’t lose it all back, (laughs)

  What makes you most proud when it comes to trading?

  People assume my proudest moment was the seven-figure FNMA trade, but I’d say that was the most thrilling moment. My proudest achievement is the years and years of consistency. I had a three-month streak without one losing day. I had a whole year where I only had seven losing days. I had another two years of only 19 losing days. I’ve tried to model my career based on baseball hall of famers like Ichiro Suzuki and Tony Gwynn, non-flash guys who were some of the most consistent hitters of all time. Anyone can get lucky once in awhile, but having a prolonged, consistent career is definitely my proudest achievement.

  Do you think trading can be learned or are you born with it?

  It definitely can be learned, although a lot of it comes down to personality. Anyone can learn the technical aspects. But can you change your personality? Are you a risk taker? Are you a gambler? If So, this profession is never going to work for you. Trading is all about discipline—the blowups come when you don’t have it. And it’s very difficult to realize and correct your lack of discipline while you’re actually blowing up. During a blowup you’re in a frenzy. So if your personality is that of a YOLO, You Only Live Once, “I’m all in,”