Penny Stocks Are Back... — Transcript

Full transcript

1. 0:00What's up, everyone? All right, in today's  episode, I'm going to break down my trades
2. 0:04from the morning. The theme yesterday was false  breakouts. We had so many stocks, I lost count,
3. 0:09that squeezed up and then did this dramatic false  breakout and ultimately ended up being a complete
4. 0:15round trip. A round trip is when we have a  stock that rallies up and then comes all the
5. 0:21way back down to basically the same price where  it started. Now, the false That's round trip. Now,
6. 0:26the false breakouts that we had yesterday looked  a little bit more like this. We had a stock that
7. 0:31would squeeze up. It would then dip down for a  moment. I was like, "Okay." Looking for that first
8. 0:35candle to make a new high. This candle opens.  It starts squeezing up. Then it breaks the high
9. 0:40of the previous candle. It pushes a little  higher. And then suddenly, out of nowhere,
10. 0:45we get this big sweep of selling, maybe short  sellers, and it flushes back down. And by the end
11. 0:51of the candlestick period, closes down here, which  changes the candle from being green to having a
12. 0:56big topping tail and being a red shooting star.  And the problem with a candle like that is that
13. 1:02typically it's also on high volume. You've got  high volume on the move up, which is what we like.
14. 1:07Light volume on those first two red candles.  And then here, during the moments when this
15. 1:11candle was green, it had high volume cuz people  were buying. But as it reverses, all of a sudden
16. 1:16people are bailing out. And so now you've got a  high volume rejection. So, we don't like seeing
17. 1:21those big rejections. It's a false breakout. And  we had a lot of them yesterday. Now, yesterday
18. 1:27I was attributing those false breakouts to the  fact that we had dispersed attention. It was hard
19. 1:32to tell which stock was really obvious. We had  from yesterday, if we jump on the screen share,
20. 1:39WXM, which had been the biggest leading gainer  of the day. We'll scroll out here so you could
21. 1:45see it. I'll make this a little bit bigger on the  5-minute chart. So, we had this really big move
22. 1:49on WXM here, where we rallied up, we pulled back,  we popped up. But one of the challenges with it,
23. 1:55really from the very beginning, as you can see  are the topping tails. So, it kept popping up
24. 2:01squeezing higher. It was looking really good and  then all of a sudden this dramatic false breakout.
25. 2:06So, right there this goes all the way up to 10  then it comes all the way back down making it
26. 2:11not quite a round trip, but darn near close. If we  looked at it on the 1-minute chart, it's even more
27. 2:17dramatic. Then you've got a couple more topping  tails on this. So, we had this one, we had this
28. 2:22one, we had this one, we had this one, and we had  this one and then it just continued to go lower.
29. 2:27So, this was the obvious stock yesterday, but it  was not easy to trade. But you know what became
30. 2:33the number one stock yesterday? It was PLAG.  Look at this thing. From 60-70 cents a share, it
31. 2:40rallies up to a dollar 50, halts up, then dollar  70, halts up, halts up two more times, three more
32. 2:46times in a row, then it drops, then two more halts  up, 1 2 3 4. Then this is such an unusual pattern
33. 2:53right here. Look at this. It It halts up at 380,  390. It opens lower and then halts up. Then it
34. 3:01opens lower and pops up and then halts down. Then  it opens lower and halts up right here at three,
35. 3:08and then it resumes at 520. What in the  world? Then it goes 1 2 3 4 more halts up,
36. 3:17three halts down, back up. You know, the person  who came up with the idea of circuit breaker halts
37. 3:24never envisioned that happening. That was not the  intended consequence. The intention of a circuit
38. 3:30breaker halt, initially, was to prevent flash  crashes. So, for those of you guys who aren't
39. 3:36already uh well-versed in circuit breaker halt,  there there's actually a lot to learn about them.
40. 3:42And one of the things that I have always found  interesting is that the halt levels can be
41. 3:46different even when you have two stocks that are  the exact same price, your halt levels can be uh
42. 3:52can be substantially different. And that makes it  really confusing. So, a lot of beginner traders
43. 3:58struggle with these halt bands. Now, I've done  a a bunch of episodes on circuit breaker halts.
44. 4:02Um so, what I'll do here um I'll I'll give you a  little crash course on how they work. So, why was
45. 4:09this stock, for instance, halting as frequently  as it was? And the reason it was halting as
46. 4:14much as it was is because it was priced in the  previous day below $0.75 a share at the close.
47. 4:22So, I've got this blog post I'll just show you  right here. This is on WarriorTrading.com. So,
48. 4:27um we're going to scroll down here. And right  through here, you can see um this table.
49. 4:35This breaks down the way the halts work. It's a  little confusing on that, so I'm just going to
50. 4:39jump on the whiteboard and and make it a little  easier to understand. Because this actually
51. 4:43continued to be an issue. We'll just jump back  on the screen share for 1 second. This continued
52. 4:48to be an issue at the opening bell today on OFAL.  OFAL ends up having the same kind of thing. Halt,
53. 4:56halt, halt, halt, halt, halt. Three halts  up, four halts down. It's It makes it very
54. 5:01difficult to trade. Five halts down, actually.  So, this is the way the halts work. Okay. So,
55. 5:06if you have a stock, so we're going to just  do circuit breaker halts. Forgive my fast,
56. 5:15messy handwriting. I should have started over  here, but that's all right. Okay, so if a stock um
57. 5:20on the prior close was below $0.75 per  share, the stock will halt every $0.15
58. 5:30going up or down if it happens within 5 minutes.  So, within basically a 5-minute spike uh
59. 5:39would create this halt if a if the spike went up  $0.75. A stock above $0.75 cents up to $3 a share
60. 5:48will halt every 20%. That's very different. And a  stock above $3.00 a share will halt every 10%. And
61. 5:56then you've got tier one securities which halt at  5% increments, but we don't usually trade those.
62. 6:00Um so I'm going to not going to include that  right now. So here's the interesting scenario.
63. 6:06You could actually have a stock you could have  two stocks side by side that are both trading at
64. 6:11um three let's just say $3.00 per share right  now. And on the first stock, they're both at $3.00
65. 6:18a share. The first stock, the prior close was  $0.74 and the other one was $0.76. So basically
66. 6:26one was just below the cusp right here and one was  just above it. So the one that was just below it,
67. 6:32the halt going up, so I'm going to do limit um  LULD limit down limit up. Um the halt up is um
68. 6:413.15 and the um halt down LULD is um  2.85. All right. So 15 cent halt bands.
69. 6:51So if the stock squeezes up 15 cents within  less than 5 minutes, then it will halt. Now
70. 6:58you I could go into a bit more detail about  how that reference price is calculated. It's
71. 7:02the average price over the last 5 minutes, but  basically if a stock spikes up within about 5
72. 7:07minutes or less um then it'll halt. This stock was  at $0.76. So it's in that second tier right here,
73. 7:15which means it's every 20%, which means the halt  up at even though they're both trading currently
74. 7:20at $3.00 a share, they're both up similar  percentages. This one will halt at $3.60
75. 7:28and this one and then it'll halt down at $2.40.  Wow. So that can move a whole lot more before
76. 7:36halting versus the first example. And then we have  this one here which let's just say uh yesterday
77. 7:42was $3.01 and it will halt. It's still at $3.00  at 3:30 and going up or uh $2.70 going down. So,
78. 7:54here you've got three stocks all the exact same  price, but because of the circuit breaker rules
79. 7:59will halt up and down at different levels  because of these thresholds. So, if you don't
80. 8:04understand how halts work, well, hopefully  you do now after after just watching this.
81. 8:09It'll give you better understanding. If you didn't  understand how halts work, you would be confused
82. 8:14about why you could have stocks of similar price  that halt at different areas. Now that you know,
83. 8:19you're empowered. So, between the hours of 9:30  a.m. and 4:00 p.m., which is when circuit breaker
84. 8:25halts are active, you've got to be really careful  trading a stock when the previous day's close was
85. 8:30below $0.75 because they will halt very quickly.  And as you can see from the case um of OFAL today,
86. 8:38but even better from PL AG yesterday, you could  have a stock that halts up at $2.80 right there
87. 8:45and resumes at $5. That went up 100% during  the halt and there was nothing you could do.
88. 8:53If you were short, there was nothing you  could do to get out sooner. If you're long,
89. 8:56there was nothing you could do to take profit  sooner. It simply resumed at $5.00 a share.
90. 9:01What was happening while the stock was halted is  there was an auction going on behind the scenes.
91. 9:06And so, likely what happened was  initially it halts up at three
92. 9:35an unrealized P&L of the $4 resumption, and  if they're in 100,000 shares, or you know,
93. 9:40whatever at a $3 average, they're down 100 grand.  Let's say that presents them with a margin call.
94. 9:45The broker now takes over their account and puts  out buy orders to cover. And so now you've got
95. 9:50buy orders going out at 4, 410, 415, 425, 450. Are  there actual long bias traders getting in up here
96. 9:56and adding? I can't imagine they would. So this is  fueled, essentially, that move by short covering.
97. 10:03And so shorts get squeezed and it goes all the  way from $2.80, whatever, up to $6 a share.
98. 10:10Now, on the one hand, this is clearly a  big win if you were into the long side,
99. 10:15but it's also a bit of a gamble because you  just don't know what's going to happen while
100. 10:19the stock is halted. You could have a halt up  as we had right here at 385, and then it shows
101. 10:24a resumption down here at 334 330. You don't know  why. All of a sudden, a market maker, or whoever,
102. 10:31puts out a big sell order to dump shares. Could be  an insider, we don't know. And so, unfortunately,
103. 10:37trading during halts presents an additional level  of risk. There are times where I'm okay with it,
104. 10:43um but on lower priced stocks like this, it's  especially difficult because of how quickly
105. 10:49the stock will halt it will will get halted. So  at this point here, it's a $6 per share stock,
106. 10:55right? But it's still halting every 15 cents up or  15 cents down because of the halt bands, which are
107. 11:01calculated by the previous day's closing price.  They don't change during the trading session. So
108. 11:08this could have gone all the way to $100 a share  in theory and still been halting every 15 cents,
109. 11:12which would make it nearly impossible to get in  or get out of the trade before you're stuck in
110. 11:18another halt. So for that reason, it wouldn't  surprise you that I actually prefer trading in
111. 11:23the pre-market session when there's no halts and  in the after-hours session when there's no halts.
112. 11:28Although it did mean yesterday I missed this  entire move on PLAG, which was fueled by short
113. 11:33a short squeeze. So, there are times where I see  these moves and I'm like, "Oh, I really missed
114. 11:37out." But, let me give you a little hint. Check  the volume. Notice how the volume declines as it
115. 11:43goes higher. Because there's not enough liquidity  when you're halting back-to-back that quickly
116. 11:48to really move in and out with any reasonable  share size. And so, the volume was actually the
117. 11:53highest during the pre-market and declined as  the day went on. WXM yesterday, we had higher
118. 11:59volume pre-market, one high volume candle at the  open, and then it declined. Today, OFAL, we had
119. 12:04higher volume pre-market right here, and volume  declined after the open. So, right even though
120. 12:10it went higher, and that's a divergence. The price  went higher even though the volume was declining,
121. 12:15and I usually consider that to be a red flag to  take my foot off the gas and slow down, which is
122. 12:19exactly what I did. So, on OFAL today, this was  not the first stock I traded. It was actually
123. 12:25it was the last stock I traded, however. And OFAL  did give us one nasty false breakout right there.
124. 12:33So, we'll break down this stock first because it's  sort of the most interesting. Okay, so, this stock
125. 12:40ends up being up a little bit in after hours  yesterday on relatively light volume. So, one of
126. 12:46the scans I use here is my after hours top gainers  scanner. So, you can see OFAL, where was it?
127. 12:53Let's sort by sort by float. OFAL, maybe it  wasn't up enough. Let's just double check on the
128. 13:02double check on the chart how much it was actually  up. There was a teeny bit of volume there,
129. 13:05that 100,000 shares. But, let's see,  the total percentage change after hours,
130. 13:10we were up as much as 18%, but then, yeah, by  the end of after hours it was only like 8%. So,
131. 13:16not much of a gain. And then all of a sudden,  boom, 6:05 a.m., this thing starts ripping.
132. 13:20Chinese Hong Kong stock with no news. Starts  ripping, starts squeezing. And if you remember,
133. 13:26of course, we had Socket on Monday, SCKT, and  that was it Monday or Tuesday? I can't remember.
134. 13:32Was this just yesterday? No, it was it  was Monday, I guess. But anyways, so SCKT,
135. 13:37we had this move from $0.50 a share to $4 a share,  also starting at, you know, kind of Well, this one
136. 13:43actually started at 9:00 a.m. But nonetheless,  this one actually had news. Um OFAL didn't,
137. 13:48but in any case, OFAL starts the squeeze, traders  are thinking about Socket from Monday, wanting to
138. 13:53catch that next big move, and they jump on it  quickly. And so you end up getting a pullback,
139. 13:58a pop, a pullback, a pop, a pullback, a pop, a  pullback, a squeeze all the way up here to 260,
140. 14:04and all the way up to 280. So you get this really  nice move, and at 7:00 a.m. I said, you know,
141. 14:09topping tail, topping tail, topping tail. I think  I'm going to just wait. Ends up doing a little bit
142. 14:15of an inverted head and shoulders pattern here and  selling off. And then we had resistance at 220. I
143. 14:20was watching that level closely, and I said, if  220 breaks, that's where I want to be a buyer.
144. 14:26I was very clear about that. It comes up here,  we get a break just for a second, I had my hand
145. 14:31on the buy button, but it stalls out, and so it  kind of it almost went, but I said here, you know,
146. 14:37my issue at that point, and I said I was clear  about this as well, was that, you know, we've
147. 14:42already had um sort of this rally back up. I'm  just I'm worried that it's going to reject here
148. 14:49because it's it just feels a little extended. So  I really wasn't sure it was going to work right in
149. 14:53this area. So anyways, it goes up there, it sells  off again, it comes back up here, double tops,
150. 14:59and this essentially is an inverted um head  and shoulders pattern. As we broke right there,
151. 15:04it was game time. And so that was my first trade  on OFAL. We got this squeeze here from uh 220,
152. 15:10roughly, all the way up to a high of $3.50. And  I was adding into that squeeze. I took a bigger
153. 15:18position, I sized up pretty heavily, and we got  a nice move. We had about 7 million shares of
154. 15:23volume in 2 minutes. It dips back down here,  and then I added back 60,000 shares right here
155. 15:29because I had a cushion on the stock, and it does  a nasty rejection. It drops down, and with that,
156. 15:35I flipped from green on it to red. This is  my P&L for the day. $17,617 as you can see.
157. 15:43And this trade right here on this last trade  was a 60,000 share position where I sized up
158. 15:50heavily looking for that move higher, and  well, that didn't end up working very well.
159. 15:54So, it ends up going sideways here, dipping down,  and then the open halts up 1 2 3 times, and then 1
160. 16:002 3 4 5 times down. Now, we're halted back up. And  so, even in the halt right now, it halted at $2.26
161. 16:09and showing a $2.43 resumption. So, the  problem with that is that, you know, you just
162. 16:14while these are halted, you can't do anything.  You're stuck. So, that makes it very difficult.
163. 16:19And if you're short, you can certainly be in  a real jam. So, anyways, OFAL a bit choppy,
164. 16:25but for those of you guys that that traded it  in this candle, that was your cleanest candle.
165. 16:29And congratulations if you got green on it cuz  that was a really nice move. So, I thought this
166. 16:34thing was going to really keep going. At that  point, it was the leading gainer and whatever.
167. 16:38So, that was OFAL. Now, we also had RMCF. RMCF is  a Hong Kong tech stock? Nope, it's Rocky Mountain
168. 16:45Chocolate Factory. Wait, Rocky Mountain Chocolate  Factory? This thing went up like 150%? Yeah,
169. 16:51you mean the same one you see like in the  airports and stuff? Yeah, the same one. So,
170. 16:55this thing ends up making this huge move here  up 268% and I traded it. I punched it, locked
171. 17:03up about $18,000 on that move. Now, this one I  traded a little bit differently. So, this one,
172. 17:10rather than trading on on OFAL, I wouldn't say  I was trading the backside. It was above volume
173. 17:16weight average price, but I was trading a curl  back up. That's a curling setup. On RMCF, instead,
174. 17:22I was trading really the very front of the move  right here as it was still cranking higher.
175. 17:27And the way I approached it was I noticed  the 200 moving average was at about a $1.70
176. 17:32resistance. That's what I sort of thought. And  so, as it came up here to a $1.70, I was like,
177. 17:37"Well, it's probably not going to hold."  Let me show you on the 10-second chart. Um
178. 17:40and then all of a sudden we saw uh big bidders at  about a $1.66 to $1.68. And I thought, "You know,
179. 17:47uh I think this is going to hold." And so, then  I started adding right here. Adding, adding. It
180. 17:52goes all the way up to 230, 240. Selling, selling,  selling, taking profit. It ends up coming back up
181. 17:57to a high of 250, which was awesome. And just with  that move I booked $17,000 of profit right there.
182. 18:03I didn't go back for it. Um actually, is that Now,  where was it? Um I was right in here watching for
183. 18:10a possible curl like OFAL. Um and it came up  to 190, but it wasn't quite able to do it. And
184. 18:16as you can see, a little bit later it tried  again, but I was just like, "I don't know."
185. 18:20My issue with this one was that unfortunately big  shooting star candle, right? I love that ascending
186. 18:27volume, but then it topped out. And then on the  5-minute chart, it was a giant shooting star.
187. 18:34So, I felt like this rally here, these topping  tails and this curl was all sort of in the shadow
188. 18:39of that. But I saw I thought the same thing  about Socket on Monday. And you know, that
189. 18:45did go higher. Right? So, we'll switch this one to  the 1-minute chart so you can just see it better.
190. 18:51So, on Monday we had this initial pop. Um now, it  didn't rally all the way back up, but it it went
191. 18:57to four, then dropped back down to $1.60, and we  got this curl back up to $3, which was still 100%
192. 19:03right in there. But again, that initial topping  tail is is pretty bearish. So, in any case, um Um,
193. 19:11RMCF, those were the big moves. And then SPRC,  $300 scalp on that. Just tried to break the ice,
194. 19:17but it didn't really work. The theme  today was definitely penny stocks.
195. 19:21Not necessarily true pennies below a dollar  share, but stocks that were cheaper and um,
196. 19:27that was where the focus was. And I think that  was really driven by the move on PLAG yesterday.
197. 19:32So, with that, I'm locking up a green day here.  I'm grateful for it. No trades in my small account
198. 19:38today. Um, not I mean, I could have. I just I  wasn't totally confident these would work. So,
199. 19:45uh, you know, and by the time some of them were  working, I was like, well, I can't really add in
200. 19:49in my small account up here. So, anyways, that's  fine, but um, a good day here and we'll be back
201. 19:54at it first thing tomorrow morning. Reminder, as  always, trading is risky and my results are not
202. 19:58typical. So, please manage your risk by practicing  in a simulator before you ever put real money on
203. 20:05the line. With that, I'll see you guys at 7:00  a.m. Eastern Standard Time tomorrow morning.