Momo Traders

by Brady Dahl

  What kind of money were you making trading?

  After refunding the accounts a few times the first year, the second year I probably made $25K to $50K. The third year, my junior year, is when I started to find my niche—the promotions and hidden gems inside the SEC filings. Every time this particular company was named in a stock’s SEC filings, that stock was likely to have a big promotion coming up in the near future. So I was always scanning the SEC filings for this company’s name. When I saw it, I’d put that ticker on watch and set alerts for volume. It seems like nearly 100 percent of the time

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  the first day that stock had large volume, it never went lower until after the promotion had ended. I started buying on Day 1 and started making money hand over fist. I’d make $20K, roll it into the next promotion and make $40K, roll it again and make $80K, then $160K… I really started to make a lot of money very quickly. I had no emotion about the money I was making, either. I didn’t put it into the context of what it was actually worth or what it could buy. I sort of lost touch with reality until I got burnt on May 5th, Cinco De Mayo, which also happens to be my mom’s birthday.

  The motorcycle story…

  Yep. The strategy of buying promotions had gotten to the point where whatever ticker had volume, you bought it and then boom, you made money. You became immune to the price swings because even when it pulled back 10 cents, it was nothing to worry about. We knew it would still close at highs for the day. I bought 100K shares of RRPH at $2.20

  and it slowly climbed a few cents each day after. On the 5th, it was hanging around $3.10 area and had started to get a little toppy, but I wasn’t worried, because it always closed at highs, right? Well the University called, they were having an event for Cinco De Mayo, and said I had to move my motorcycle before it was towed. I figured fine, whatever, RRPH will probably be back at highs by the time I get back, so I went out to move the bike. I had a Palm Pilot at the time, so as I’m walking back, I check the RRPH quote and it says $2.20. In my head I’m thinking that can’t be right, my quotes are messed up, maybe it’s supposed to read $3.20. But I start running back and now it’s at $2.10, then $2, and by the time I get back to my computer it’s at $1.50.

  How much did you lose?

  It ended up bouncing back up some and I took about a $90K loss on it, but it was about double that near the bottom. And that’s the first time I thought, hey, maybe this isn’t the greatest strategy, maybe too many people were doing the same thing. So that was really the peak of that easy money period. But it took me a while longer to realize that and truly change my ways. I was still looking for the next big score

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  when I started loading up on CPNE and buying into its story. They were supposed to be uplisting to the Nasdaq and there were buyout rumors. I was still drinking the Kool-Aid then and believed what CEOs and PRs said and doing stuff like calling the IR department regularly. I started buying in the $2.50 range and ended up averaging down and down until 1 had about 200K. shares at around $1.80 to $2

  average. Long story short, I ended up selling it all between $0.35 and $0.40 per share. In the end, I had made about $900K that junior year before giving back around half a million dollars between RRPH, CPNE and other trades where I was trying to “make it back” quickly.

  Your strategy no longer worked. How did you reinvent yourself ?

  Well this is where I took a step in the wrong direction. I tried to take a shortcut. I was compounding both losses and bad decisions as I tried to make back what I had just lost. Here I was counting my money at S900K, going for that million dollar break, thinking about the party I’m going to have when I hit seven digits, and then all of a sudden a couple weeks later I’m only halfway there. It was a big, big setback for me. Suddenly I had to face the reality that maybe this whole time making money hand over fist was just luck. And that’s when a friend I had met on InvestorsHub reached out to me. He was big into promotions and had just started making a ton of money promoting companies. He knew I had a following on message boards and the ability to pick good plays and stocks that people were generally interested in. He saw the potential for me to influence a stock with my opinions, so he wondered if I’d be interested in helping him promote.

  He said I could make back all the money I had lost in no time. It was an opportunity for an easy fix to my problems, so I said why not.

  Did you have any reservations going in?

  For me, at the time, I really didn’t have any checks or balances. I was naive, and promoting stocks isn’t actually illegal. It’s stuck in a gray area. Companies need exposure. CNBC promotes companies and suddenly tons of volume pours in. That’s what develops a market over time. People find out about a company, become shareholders in the

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  company, and the stock becomes liquid. I ended up making a website and promoting about a dozen companies with my friend. Where I went wrong is I started trading the stocks we were promoting, which is illegal. Horrible decision. And eventually my friend started to run things offshore, moving money and paper—the stock he was given to promote—offshore. I got very uncomfortable and decided to take a step back. 1 made it known I was separating from him and said it just wasn't what I was interested in doing. When we first started, the companies had good news and were legitimately seeking exposure.

  None of them were bankrupt. But eventually my friend got greedy and it became more about how- much paper he could get to dump, no matter what company it was. I split ties and thought I was in the clear.

  But…

  But about six months later I got a knock at my office in Boston and it’s the DOJ and SEC. I was scared shitless. They wanted to know about my business relationship with my friend at InvestorsHub. As naive as I was, I thought I had done no wrong and had a conversation with them. We had a couple-hour long conversation, and they left some paperwork. I ended up getting a lawyer, and about a week later I was informed that I had now become a target of the investigation. It was a life-changing moment.

  What was the result of the investigation?

  Fortunately for me, as we went through this entire process, the proof of illegal activity they collected, the message board posts, instant messages, texts, etc—everything taken from my friend, myself, and others—was actually proof that I was an idiot and didn’t know what was going on. It showed I was concerned and wanted to get out.

  But you were fined, right?

  $190K in fines and another $75K for the lawyer. After bag-hold losses like CPNE and paying taxes for the prior year, I had very little money left. A couple grand. It was really a low point. My 52-week low’s.

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  How did you bounce back?

  I had to really use the support system of my friends, my then-girlfriend-now wife, Laura, and my parents, who were incredibly helpful and encouraging. 1 couldn't have bounced back as quickly without them. But 1 was in a bad spot. I actually opened a prop shop account at the time to try trading again, but I was just too emotional too aggressive. Even if I made a grand, it wasn’t even close to where I had just been, so nothing felt good enough. I ended up blowing it and literally started looking for 9-to-5 jobs. It happened to be the end of the year, though, and I noticed something while going through tax documents. $1,500 in interest. I had no idea what it was from and I sort of forgot about it until I came across another statement. I looked into it and realized when I had liquidated accounts, I had left one with $25K sitting in it. It had been collecting interest all year.

  So you forgot about $25K?

  Yeah, because I had like 10 accounts at the time. And I had been blowing out of bag-hold stocks like CPNE because I didn’t know if accounts w^ere going to be frozen. In the rush, I totally forgot about this one account. But finding it was enough to remind me that I knew how to trade, I knew how to build an account, and I could do it again.

  So I started trading again. And blogging at InvestorsLive.com.

  What was
the catalyst for the website?

  To keep myself honest. To blog about my watch list and stay focused on tracing. I’m more of a morning trader. Most of my money is made between 9 a.m. and 11 a.m., so rather than lose those gains during the lull and afternoon, I needed something else to preoccupy my time, I had always liked to build websites, so I figured I’d build one and blog about my trading. It was sort of just another project for me. Blogging was my way of combating overtrading. But then it started to catch on.

  People were curious. People were talking about it, discussions developed in the comments section, and it made sense to add the chat room feature. There were a lot of ideas being shared as it grew and

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  grew, but it got to the point where it was all over the map and confusing. I saw an opportunity to not only help others but also monetize the site at the same time, and it became subscription-based.

  And that’s when you merged rooms with Muddy and Laura?

  Yeah, Bill, his real name, and Laura ran another website with similar alerts, so I approached them with the idea of combining our rooms rather than stepping on each other's toes. That’s how it all started.

  Subscription services in the investment and trading industry really started to break out, and it s been a pretty steady uphill breakout since.

  How does the chat room play into your trading?

  In two ways really. Number one, it prevents me from taking every single compulsive trade that I might typically take and forces me to focus on great setups, the prime setups that give our members the best chance at success. That’s the greatest result of chat. But number two, the financial stability provided by it has allowed me to become a better trader. Time and time again I have seen traders really start to excel when they finally separated themselves from the profits, when they no longer had to make money each day. When you can finally become financially comfortable enough to just trade what you see and not force stuff because you desperately need to make a trade, you’ll be amazed at how much more money you can make in the market.

  Do you think it’s beneficial to have fellow traders to bounce ideas back and forth?

  Absolutely. You don’t necessarily need to consult the whole world on a trading idea, but I think it’s necessary to have at least one trading partner. I trade with a couple close peers on a regular basis. Whether it’s a good day or bad day, they can help you keep your head on straight. You can be 100 percent honest with them about what you were thinking when you entered a trade, and then discuss what mistakes you made, etc. It’s really about having a support system, whether that’s high-fiving or picking someone up when they’re down.

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  What’s your trading routine on an average day?

  I like to get up early. 7:00 to 7:15 a.m. EST. That gives me time to do all the things that have no way of keeping my attention later once the market opens, like going through all the emails I get. I shower and get dressed, which 1 think is an important part of my success. Look sharp trade sharp. You’re a professional so act like one. I think your attitude trickles down into your performance. By 8:00 a.m. I’m starting to look at the stocks that made my scan the previous night, what stocks I’m going to need to borrow to go short, and whether or not it’s easy to borrow or something 1 need to locate. I don’t want to waste my morning watching a stock, preparing for its move, only to discover later that I can’t borrow it. If something is already setting up like I had anticipated pre-market and has a lot of volume, I will put a trade on. I also spend time from 8:00 to 8:45 a.m. fielding questions in the chat room or anvthing else people need help with. Then 8:45 to 9:00 a.m. I make my plan for the day. I pare my watch list down to about three or four main watches, the stocks I’m going to trade out of the gate. I like to get a feel for them, watch them, and see how they react at certain levels. That gives me some type of idea for how I’m going to play them at open.

  What determines whether or not you trade one of your watches during premarket?

  It really depends on what’s going on. If there’s a lot of volume or a big gap up with liquidity, that’s something I would trade. But if there’s just a few prints here and there, I’ll wait until after open. Basically the only time I trade premarket is when the stock is already trading like it would during market hours. It has trend, you can read it, and it’s no different than trading it normal hours.

  And you trade immediately at open, right?

  Yeah, most of my trades are purely reactive at the open as long as they are heavily liquid. I’m not anticipating what they may do but rather reacting to what they are doing. I think I have an edge during that time

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  because I’m good at sensing the emotion on the other side of the trade. At what point would I be panicking if I held short overnight?

  That s where I want to initiate a short today. Vice versa for the long.

  The edge is reacting to emotional action. After the first 15 minutes, things settle down. The wicks get smaller, stocks pick a trend, and you can trade normally. But most of my money is made in the first couple hours. Past 11:00 a.m. I like to sit back and let things play out during the lull until I make another plan around 2:30ish into close. Then I like to leave the desk and head to the gym or somewhere to get my mind off trading. It's difficult to even have a conversation right after the close. I need an hour or so to detox and relax before moving on.

  Do you come back to the market later?

  Yeah, around 6:00 or 6:30 p.m. for 15 to 40 minutes to do scans. My scan is my strategy, my game plan for the next day. That homework allows me to come to the market with confidence each day. Then I try to get to bed by 10:00 p.m., fall asleep around 11:00 p.m. I want to feel refreshed in the morning.

  What does your trading desk look like?

  One main PC that controls three 30” monitors, which allows me to focus on what I need to focus on. The desk itself is a sit/stand that moves at the push of a button, so I always try to start the day standing.

  I’ll end up sitting within an hour or two, but then I try to push the chair away again and stand. A body in motion tends to stay in motion.

  What platforms and software are you using to trade?

  DAS Trader Pro is the platform I prefer to use for everything from Level II to Time & Sales to charts and order entry. It’s simple, clean, fast, and I love it. So that’s really my main focus. I also use Sterling Trader Pro and E*Trade Pro for order entries with my other brokers, hut I think you should stick to what you know when it comes to charts and Level II because you’re familiar with how you see and find trades.

  You’re used to reading the charts a certain way on a certain screen.

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  Any other tools you’re using to trade?

  I use Twitter to get a feel for what people are trading, in what direction, and what the crowd is doing. For instance if everyone is short a particular stock yet it continues to move up, I probably want to stay away from shorting that stock. Or if everybody on Twitter is long a particular stock but that stock keeps falling, at some point everybody is going to panic and sell, which is when I want to be buying. Twitter gives you an instant feel for what’s going on in the market. You can also generally find whatever information caused the stock price to move in the first place, whether that’s legitimate news or a buy/sell alert from someone with a big following. I also use DAS Trader Pro's High of Day list and the Nasdaq Gainers and Losers List to see what’s moving. I used to use many scanners, like Equityfeed, more actively, but since the OTC market has died I haven’t found as much use for them. We have more than enough potential plays the way it is.

  I would think one of the biggest tools you use is your own chat…

  Yeah, I do think of chat as a big tool, likely one of the most important.

  Besides me or even the moderators, you’ve got hundreds of eyes all focused on the same thing, looking for the same type of setups, the same type of momentum, so you’re really not
going to miss much.

  That’s been one really big positive about chat. If I just have my chat and a laptop I’ve got more than enough to trade.

  Are your trades based purely on technical analysis?

  Everything I do is based on technical analysis. I react to and make the trade based on price action seen on the chart, Level II, and Time & Sales. But I’m continually trying to learn as a trader. A lot of the great traders we know, some of them in this book, are better at the fundamental side of things. They know what a particular offering or recent SEC filing means for the stock. That knowledge gives them the confidence and patience to hold for three to five days and capture the larger move. But for now I’m really more of a “trade the ticker, not the company” type of trader. I react to price action and volume.

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  You trade momentum, whatever is moving, and rely on past experience to guide your entries and exits…

  I rely on past experience, yeah, because stocks tend to do the same things over time. The biggest thing to remember when trading momentum stocks is not to fight them. If you’re wrong, be wrong. But for the most part, when a stock has so much momentum it becomes overextended, there is a period of profit-taking, which is when I like to take advantage of the downside. I also like to get a feel for what’s going on from an emotional standpoint. I want to take advantage of panic. I get interested in a short when I sense that early shorts are starting to get absolutely crushed and the price speeds up. I know if I was them, I’d be panicking right now.

  What charts are you looking at?