Two Decent Trades Detailed aka Why Having A Quick Trigger Finger Can Be Good

Tags: Decent Trades, Impatience, Patterns To Buy, Patterns To Short

When I shorted 2,500 shares of (KBX) at $1.79 yesterday morning, I had little idea it’d drop 20% over the next 24 hours. No, I shorted it because its chart had gone vertical—meaning it was close to peaking—it was the third big up day in a row and the price/volume had already begun to fade the day before.

Experience teaches me that it’s extremely difficult for a stock on that third day to finish green, let along up 10%+ because since it’s up soooo much sooooo quickly that buyers begin hesitating, wondering if they can buy in lower, longs start thinking about taking profits and short sellers like me begin wondering if we should pounce to take advantage of this natural cycle. So I took the morning strength as early short sellers getting squeezed, aka temporary.Unfortunately, the stock also had three negatives in my book—it’s a gold play—influenced by the price of the gold itself, aka not an ideal penny stock hype play, sure it’s gone up a lot but it’s only up from $1.25, aka not much more than 40 cents short-term downside and it’s on the AMEX—ridiculous price spreads between the buyers and sellers and market maker games.

And yet I shorted in the morning no less because a) the volume had faded substantially and b) sellers took out a big block of 15k at $1.79, I didn’t want to miss out on any sudden price collapse form it going green to red on the dayWithin minutes, I was up 5-7 cents on my short, but so what. The spread was ridiculous $1.72 x $1.77 so if I tried covering at the ask, I’d really only be up 2 cents. So I waited. A few minutes more and the stock bounced, but the volume remained weak and I was comforted by big sell blocks all in the $1.80, $1.81 and $1.82 range. Suddenly, a wave of selling hit, bringing the stock to $1.70 x $1.77. Ridiculous spread again.

I said to myself there’s only 4 hours left until the Fed comes out with some announcement that will influence the dollar and gold, would I want to stick around for that? Hell no, not in a less-than-ideal play that could also just keep going up gradually, squeezing shorts along the way like fellow $1 to $2 player MMTIF. So I put in a buy to cover order at $1.71, just above lots of big buy blocks at $1.70, the price that was resistance the day before (so theoretically should now be support).

Within seconds, I got my whole buy to cover order. I knew what that meant—it was going lower. Some market maker was glad to sell the shares I was buying at $1.71 because he probly had big sell orders that he knew would take out $1.70 and maybe more—considering then it’d be near unchanged for the day and probly go red.But I had my $180 profit, so I didn’t worry about it. It was a solid entry and exit and even though this stock continued to downtrend gradually until it really crashed to the $1.50 range as the Fed cut crushed gold prices meaning I basically left $500 in profits on the table, I was satisfied. Remember, I look for volatile stocks because since I KNOW my timing will be off, I just look to hop on and off along the way. Mission accomplished.

Today, I saw an opportunity to bat from the long side—buying 1,000 shares of (VLNC) at $4.12 on the intraday, multi-day, multi-week, multi-month, etc breakout of the low $4s. Event though it was mid-day, I like buying breakouts when they breakout over multiple timeframes—that way I now it pops up on trader’s technical screens and ideally it becomes a self-fulfilling prophecy.Within minutes, I was up 5-7 cents per share as the breakout did continue, albeit slightly. Now, on this one, I was prepared to hold as long as the stock kept going higher—last time it broke out of such a strong base, it went from $3 to $4 over a few days, so while I doubted I’d be able to hold that long, I was def. open to making a multi-day commitment. But there were big block sellers from $4.17, $4.18 and $4.20. Some even hid their actual number of shares, disguising their orders with only a few hundred shares, aka big-time players (I used to do that). I tried selling my shares ASAP at $4.14 to breakeven—after commissions, but only got 300 shares…had to put in another order, paying another commission, selling the rest at $4.11 and $4.10, total loss of $35. Good loss, stock now below $4, I don’t trust failed breakouts at all. Also, if this stock ever does break $4.20 on its way to $4.50+, I can buy back in! The beauty of trading, it’s like painting, trade with many, many brushstrokes, not just a few. Total profit of $145 between the 2 trades, not much $, but good risk management on less-than-ideal trades.

So back to all cash right now, stalking potential prey, not much out there, maybe a COIN short, that’s about it. Guess I’ll just devote my time to writing and blogging and reminding you that there is now less than 24 hours left to sign-up for my FREE DVD GIVEAWAY

UPDATE: Went short 400 shares of COIN at $8.78 into the market close because it cracked late day support around $9 and this Merrill Lynch rumor has got everybody scared so the overall market should be weak early tomorrow. Unfortunately, I’ve got an early meeting, so I tried covering afterhours today at $8.51 only to discover Thinkorswim’s first flaw: they cut off trading at 6:30PM even though trading goes until 8pm. Probly will help me though as COIN just has no support whatsoever now.

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