Momo Traders

by Brady Dahl

  Soon I had made back all I had lost and was back at breakeven. And now I had $3K of my own money to trade with since I had just made back the original $1,500. That’s when Awesome Penny Stocks hit AMWI and I was prepared for it. I had a bunch of different email addresses and basically got one of the first emails they sent out. I threw my buy order in and filled about a $2,700 position at $.11 per share. Then it upticked on air and within five minutes I got out for like $2K profit around $.18 per share. It was just mind-blowing for me considering I had been grinding out $100 here and there for months on end. That might have been the most excited I’ve ever been on a trade. I was jumping around the apartment.

  You nearly doubled your account…

  (laughs) Yeah, really. And it was a relief because trading had been really nerve-wracking up until that point because I was getting mixed results and time was running out on college.

  You were close to having to get a real job…

  Right. So I was careful the rest of the semester until I graduated and moved back home.

  Did you go looking for a job?

  At that point, no, because around Thanksgiving I had told my dad I wanted to try trading for awhile after college instead of looking for a job. I felt like I was finally turning the corner on it, and he understood.

  He was sympathetic to my desire not to work in an office

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  environment, not have a boss, because he was the same way. But he and my mom were concerned that if I wasn’t able to trade profitably I’d just be sitting at home for a year wasting time.

  Plus you had only made a total of about $2K in six months, not exactly a great living…

  Exactly. So I worked out a deal with them. Starting Jan. 1 I had three months to trade full-time and I had to earn at least $10K during that period. If I could do that, I could stick with trading longer. If not, I had to either get a job or find someplace else to live.

  How’d it turn out at the end of three months?

  I made it. I had $1 OK in profits by the middle of March.

  And during that time you’re still mostly buying promotions?

  Yeah, I shorted a bit here and there, but it was mainly promotions.

  And I was doing it full-time now, which was great. It was the first time I had been in front of the market from open to close every day. I treated it like a job and stayed disciplined.

  Newer traders might like to know how you dealt with the pattern day trader rule?

  I split my money between three accounts, Interactive Brokers, Speedtrader, and thinkorswim at TD Ameritrade. That way I could make nine day trades a week, three in each account. I still had the money my parents loaned me, so I hit the $25K mark in a couple months and merged all the money into one account in order to day trade freely. Then my trading really took off from there. In January and February I made a few thousand each month. March was $6K.

  April was $9K. In May I remember hitting a big promo Day 1 for like $10K in five minutes again. So that’s when I realized, wow, this is getting to be serious money.

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  What were your parents saying at that point? Still hesitant?

  A little, yeah, but I think after that $10K win everyone became a bit more of a believer. Our Internet wasn’t working that day, so I made that trade from a Panera. I came home and was like, “Hey, look what I did.” (laughs) By the end of 2012 I was up $150K.

  Using the same strategies all year?

  I had started to branch out. Once I had enough money, I started paying my parents back and refunding my IB account so that I could focus on shorting again. Most of my money was made buying promotions and other OTC stocks, but I was slowly learning how to also buy bounces, short sell parabolic moves, and short sell bounces once they topped out. I slowly added to what I was already comfortable with.

  So how did you get to a million from there?

  Well I had moved out of my parents’ house in August of 2012 and moved in with a best friend from high school in Columbus, Ohio. It was good because I still didn’t have to deplete my trading account to pay huge bills or anything like that. Then 2013 really started off crazy.

  By the end of February I was already up almost $150K, as much as I had made all year in 2012. Part of the reason was because I started with a much bigger account that year. I was also just getting more comfortable going bigger. I nailed a few promotions, was getting better at short selling, and there were plenty of OTC stocks to trade.

  Every day was the same. Same setups, different tickers.

  Take me through your typical trading day now…

  I’ve never been much of a morning person, but I get up around 8:45

  a.rn. EST to give myself 45 minutes to get my head in the game and get prepared. I review the watchlist I made the night before, looking for what tickers are setting up for my ideal plays on them. I prioritize which ones I want to go after out of the gate, maybe two or three. I

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  enjoy morning trading, so I want to feel organized, know what I’m looking for, and not be trying to watch eight tickers. I trade pretty actively for the first hour or two, then depending on the day, I’ll watch my scanners for new trade ideas or stream TV shows on my laptop to distract myself from boredom trading. There are days I go to lunch or just walk away for an hour or two, but generally I like to be in front of the monitors in case a trade sets up. Once the bell rings I try to relax a bit, whether that’s taking a nap or going to lift weights. Later that night I’ll make my watchlist for the next day based on whatever scans I run.

  You don’t trade after hours?

  I usually don't. Very rarely something will hit my radar and I’ll throw a couple thousand shares at it, but I try to be done at the bell.

  Do you review your trades?

  At the end of the week I upload everything to Profidy, which serves as kind of a refresher because I’ll look at my trades one at a time and sort of analyze them. When I first started, I tracked my trades in a journal, but I don’t anymore.

  What equipment and tools do you use to trade?

  Right now it’s a desktop computer with three 27” monitors tilted vertically so I don’t have to look so far side to side. As far as platforms, I use either Equityfeed or StocksToTrade for my market scanners, SpeedTrader for my Level II, and thinkorswim for my charting. It s free software, but I’ve always used it and I feel pretty comfortable with it. I also have Sterling Trader Pro open for my Centerpoint Securities accounts.

  How many accounts do you use?

  Three. ETC and Wedbush with Centerpoint, and then SpeedTrader.

  At times I’ve had five or six accounts but it’s just too much.

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  Do you pick your trades based purely on technical analysis?

  Yeah, I really do. I’ve always had the “let the trade come to me”

  philosophy, so I want to wait until I see a trade setting up on the chart.

  And daily charts are probably the #1 thing I base my trades on. I want to know what the big picture looks like. Right now I like shorting overextended daily charts very much. I like to short a stock that’s had two, three, or four up days in a row with big range. Or if I see a daily chart breakout clearly setting up, I want to go long.

  How far back are you looking? 6 months? A year?

  At most a year.

  So if you’re looking to long a breakout, you want it to be breaking the prior year’s highs?

  Well it doesn’t have to always be a true 52-week breakout. I’m only interested in the part of the chart that has volume. A stock might have been at $10 per share during the last year on almost no volume, but then last month it went from $1 to $2 on the highest volume it’s ever traded before pulling back again. Now I’m interested in a breakout above that $2 level. You can almost treat it as a fresh chart with no history once all that volume pours in.

  Due to the crazy amount of volume it has recently seen, none of the prior technical levels really matter
because those buyers and sellers are gone by now…

  Yeah. There could still be some key psychological points attributed to those prior levels, but the recent huge volume is what really matters.

  Intraday are you using l־min charts or…?

  1-min usually. But I’ll look at 5-min charts also to see back a few days.

  And Level II is a big part of my trading. Mostly for the OTC market, but it does help for the listed stocks, too.

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  Any technical indicators?

  I don’t really use them. I stick to basic support and resistance levels.

  Are you long- or short-biased now?

  Now it’s short. I’ve become way more short-biased over the past couple of years. Overextended charts or shorts into spikes are definitely my typical trades now.

  How do you enter a trade? All at once? Scales? Do you slam the bid or offer?

  It depends on the price action and liquidity. If I don’t feel like I’m going to get an execution sitting on the offer, I’ll just slam the bid and get filled a couple cents per share worse. But it also depends on what setup I’m looking at. If I’m trying to short into a morning spike, I’m a lot more comfortable putting my order on the offer in anticipation of strength. On the other hand, if the stock is cracking and I want to be short, I’ll slam the bid, but I don’t really do too much of that anymore.

  You’re not shorting into weakness much anymore?

  No, I’m not. I’ve kind of come to the conclusion that a lot of my headaches, or trades that become headaches, are the ones where I short into weakness only to have the stock surprise me and find support. I’d rather short into strength because even if I’m wrong and mistime it, stocks will often provide the pullback I need to get out at roughly breakeven or for a small loss. Especially if you have other resistance levels coming into play.

  What’s your process for scaling into a short like that? Shorting into strength…

  I don’t really think about it when I’m doing it, but I’d say I probably enter in thirds or fourths. I will not just add and add without any kind of stop loss or plan. Usually I’ll look for an area with resistance. Say a

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  stock has resistance at $1.20 and $1.40 and right now it’s at $1.00 I want to start shorting on a spike up to that $1.20 resistance area.

  With how many shares?

  It depends on liquidity but lately I’ve been taking positions that when full-sized equal around $100K. But I don’t really think about that when I enter. Rather I’m thinking about risk, how much money I will lose if the trade goes against me. And right now I’m trying to limit my losses to around $2K to $4K. So when I start that short at $1.20, my plan is to add if it gets to that second resistance area at $1.40 but then get out of the entire position on a pullback. If there is no pullback and it shoots right past $1.40 I have to cut the loss.

  So you always have a stop in mind when entering…

  I know how much I’m willing to lose and to what price I’m willing to risk, so that dictates how much size I’ll be using in the trade.

  So let’s play out that example. You start shorting at $1.20 with how many shares?

  Probably 15K or 20K shares. I like to kind of ease my way in.

  Say it ramps to $1.40, how many do you add?

  I’ll probably double at least, maybe even more. Because those moves so rarely go straight through to higher prices from what I’ve seen. So if I started in 20K shares, I’ll probably add 30K or even 40K at $1.40, bringing my average up into the $1.30’s. Then I’d be pretty confident it pulls back into the $1.20’s to let me out. Or at least downsize if I want to try to stay patient and keep that risk level of $1.40 again.

  What if it ramps back up through $1.40 toward $1.50?

  If I’m following my rules, I’m getting out at $1.40 as it breaks out. But I hate being the guy who covers at the top of a spike, so I sometimes

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  give it a little more wiggle room to see it it s going to hold the new level. If it's been grinding back up all day and breaks through, I’m more likely to just take it off immediately, but if it s the first spike of the day, I’ll probably give it more wiggle room. It kind of depends on how big the move was, how quickly did the move happen, and what’s my feel on the trade.

  You scale into trades going against you, but do you do the opposite and add to winners?

  I don’t do that much right now. It’s actually something I want to work on for next year. If I’m short, and if it’s a winner so far, I want to identify levels on the chart where the stock has failed to break above a few times and then add right at that resistance level.

  What’s your most profitable setup?

  Since I’m still working on following my rules while shorting, I’d say my most profitable setup is still buying new promotions. If you find the right promoter that everyone is following and everyone is going to be buying when they announce a new pick, I think it’s an easy buy, especially if you’re quick enough to be one of the very first.

  How have you been dealing with the lack of promotions lately?

  That’s where I’ve had to focus on different setups. But it’s a matter of patience. I’m sitting back and waiting, hoping more promoters surface soon. But if they don’t, I’m learning new setups and adding new tools.

  How has your profitability been affected as you’re trying to evolve with the market?

  It s definitely been a slow down for me. Maybe a little less profitable, but I feel like it will always be enough to live on. The OTC market just died after the marijuana stock cra2e ended. That’s when I first started forcing myself into trading listed stocks.

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  So it’s still relatively new to you…

  Yeah, I’ve traded listed stocks for about seven months, and I really like it so far. I love the volume. I love the liquidity in the stocks that really start running. I see more profit potential with listed stocks than I did with OTCs. But I still make mistakes. Mostly being stubborn.

  Do you find it more difficult than OTC?

  Yeah, because on the OTC market I relied heavily upon Level II analysis, but Level II works so differently on listed stocks. I can’t use it in the same way. If I’m shorting an OTC stock into a parabolic move, it’s usually pretty easy for me to see where the stock is turning, where it’s topping, based on Level II. But with listed stocks it’s just way too fast and jumpy, so I have to trust the chart more, which has been hard to adjust to. But I’m usually glass-half-full, so I look at how I’ve traded over the last several months and realize I’m still having a lot of success. I’m still very consistent. Of course I haven’t seen a truly bad bear market yet where there might be less opportunity, so that’s a bit of a concern, but I still trust there will be plenty of trades to be made.

  How many tickers do you typically trade intraday?

  I probably trade three or four.

  And with scaling, how many total trades?

  I’d say with each ticker I probably trade three or four times on it, too.

  I get in, I get out, then maybe I’ll hit it again if I see something I like later, but I don’t scalp all day long like some traders.

  How many positions are you comfortable holding at once?

  I don’t like to be in more than two or three. It’s just too hard to watch.

  I can have six or eight charts up, keeping an eye on them for plays, but once I’m in a position it takes a lot of my attention.

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  So you’re analyzing every tick?

  Yeah, usually, but it depends on the setup. Watching too closely can work against me at times, too, when the trade s not moving as quickly as I had hoped so I cut the position, only to see it work out just the way I had planned anyway. But I like to watch because as a trade goes in my favor I will move risk levels.

  You’ll move mental stops closer as a trade goes in your favor…

  Yeah. If I’m long a stock and it
forms a new support level higher up, I’ll probably play off that new support level later. Because if that new support breaks, I think the trend is now broken and the next support level will likely fall as well. Like a domino effect.

  How long are you typically in a trade?

  Most of my trades are probably an hour or less. And I don’t really like to swing anymore. Too much overnight risk. I like to start fresh the next day. If I’m swinging, it usually means I got stubborn in a position and I’m waiting for it to come back in my favor. My trades are also quick because I hate sitting through consolidation. One of my biggest issues the past few months is that I’m trying to be a more patient, bigger-picture trader who can hold shorts for days, but that flies in the face of what I’m good at, which is shorting a spike and covering into the first pull. I’m sort of caught between two worlds right now.

  Why do you feel like you should be that type of trader? In the name of improvement?

  Yeah, I think it s a matter of improvement. I see guys making good money holding shorts for days after volume drops off and everyone has forgotten about the stock. I don’t even trade stocks when the liquidity is that low, so that’s a good question. Why do I feel I have to do that? I guess I don’t know. It’s just the next thing I want to try.

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  Can you discuss your process for increasing size and getting to the next level? Many traders struggle with that.

  It’s definitely a slow process. I try to ease myself into it. As my gains have gone up, I push how much I’m willing to risk on each trade.

  There was a time where a $100 loss would have been absolutely demoralizing, so I had to really push myself to double that to $200, then $500, and so on. But consistent gains make it easier. Once you realize you can consistently make money on a certain setup, it’s easier to go bigger on that setup. But I don't go from risking $2K now to risking $10K tomorrow. I want to slowly get comfortable with it.

  How big of an account do you trade with?

  You definitely want to be above pattern day trader at $25K, or at least have multiple brokers. But I tend to keep a good chunk of my money in my trading accounts, probably around a million or so right now.