Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Tuesday, March 18, 2014

Trade Recap: PHOT Overnight Long

I often talk about longing OTC stocks into afternoon strength and holding for the next day gap-up. When things go according to plan, it's one of the easiest trades in the world! But what happens when things go wrong? My PHOT trade from last night is a fantastic example to learn from.

The Setup:


I bought 130,000 shares of PHOT at roughly a $0.75 average shortly after 3:00 EST, as it was breaking above the high of the day. I was using the $0.70ish low from the previous pullback as my risk level, so the brief shakeout to $0.73 didn't scare me out. The stock ripped back, closed at the high of the day, and I was feeling great about my overnight hold. I thought for sure the stock would open over $0.80 and have a great morning spike.

The Result:




Before the market opened, there was a negative article released about PHOT. The stock reacted very negatively to the article, as you can see above. PHOT gapped down, opening at a price of $0.75. People have asked me before what I do when the stock gaps down instead of up. The answer is that I get out. Because it was a new day, I was no longer using the same risk level as the previous day. Since PHOT was opening red on the day and was up so much from the original breakout level of $.467 the previous week, I felt that there would be way too much risk to hold through a potential morning panic in the hopes that the stock would recover. Based on my experiences, it is pretty uncommon to see an OTC stock quickly push back to green and continue after it has gapped down.

Although PHOT gapped down, there was a moment of strength. It tried to perk up, reaching as high as $0.756 before the real collapse began. I took advantage of this brief strength to sell 80,000 of my shares. This is where I made my mistake. Since I felt content that I had decreased my position size, I decided to give the other 50,000 shares a chance just in case PHOT recovered. I ignored my knowledge that a recovery was unlikely and decided to hold and hope for a push back to green. By the time I realized the recovery was failing, it was too late. I was stuck in a panic.

The PHOT panic was very fast and violent. Despite my mistake, I did not compound it. Rather than panic and try to sell PHOT at whatever price I could, I stayed patient. I have found that when I chase panics, I usually wind up getting executed near the bottom of them. So I held through the plunge. I analyzed the level 2 action, and when PHOT bottomed at $0.625, I actually bought 120,000 shares at $0.63ish for the bounce. I didn't make it too long with my bounce position, I wound up selling it around $0.665 just to take safe gains (in case the bounce had failed). However, I kept my 50,000 shares that I held overnight and managed to stay patient with those until I finally sold in the high $0.69s. 

Trading is all about keeping yourself in predictable, comfortable situations. I failed to do this by "holding and hoping" with my last 50,000 shares. However, because I managed to avoid making any emotional decisions during this panic, I walked away with a net profit on PHOT for the day. Had I not played the bounce, I would have at least minimized my loss. 

26 comments:

  1. Great post Tim, thank you for sharing. I was playing the PHOT sell off today and looking to bounce it. I called the bottom at .63 but I just could not get filled all the way to .67 (I use TD Ameritrade). This has often been a problem for me with TD, what advise can you give on getting filled better and how would you play a bounce if you can't get filled and it keeps going? At what point do you give up and say "I missed it?"

    Maybe the answer is as simple as "switch to my broker" but your insights would be appreciated.

    Thanks Tim

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    1. Switching brokers is probably the simplest answer. If not that, you have to be a bit quicker to recognize when the momentum is turning and get your orders in sooner. This of course is risky if you're wrong though

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  2. Bounces and spikes and dips and gaps and panic... whew! Thanks for your insight about not compounding things when the trade goes against the original plan. Very helpful.

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  3. this is...EXACTLY...word for word what happened to me (i'll email you the pics later) but even the thoughts were exact. I took off of yesterdays mini panic and entered .73s and held till eod and this was an obvious gapper realistically. I wake up only to find an o/n hit piece out. at first I try and tell myself "ah its so bullish it probably wont do that much damage." then I start realizing the reality before the market opens. what is the most realistic outcome? what possibilites are there against me? "PHOT is extremely overextended at this point. taking it over night was risky." "SA articles tend to do bigger damage to OTC picks rather than Nasdaqs given the type of market participants who trade it." even thru telling my self this, I still wanted to see the open. I saw the wall holding in the morning and for some reason I just didn't try to sell when my guy told me this is going to tank hard and fast as soon as that bid drops out...and it did. I sold dead bottom for a -.10 loss. whats funny was I was telling myself "Well Grittani did say these usually tend to bounce and trying to sell into panic is way too late. may as well way for the bounce". I should've....

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    1. The combination of Tim's post and your response was REALLY helpful, so thank you guys both for writing this.

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  4. I also saw that short term .665 top on the L2 (nice exit on your part) even tho it popped up and continued going. one thing I noticed about PHOT is that it doesn't typically trade in a straight matter when its not choppy. What I mean is for a min or two the bids/offers will be taking large hits looking like a bounce is gonna come but then the bids/offer drops away for a min and then pops back up. can be a hard read at times.

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  5. amazing summery of everything. I myself woke up to the SA article, and having no position in the stock just watched the panic with evil joy, bought the bounce and then sold right near the top... i shit you not... all based off reading level 2 - which I learned from you dude... THANK YOU

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  6. Hi Tim, I had a question about ERBB since you were overnight with PHOT. Since ERBB didn't gap up, and went red on day within the first 8 minutes, did you sell right away when it looked like it was going to go red on the day? Did you, or do you ever go long on a r/g move on the day and did you in this scenario in the morning? Really anxious to hear your thoughts! Thanks

    P.S. were you long from $0.048?

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  8. Great post Tim. I also played PHOT overnight thinking that it was going to open near $0.80. My mistake was that I ignored the premarket gap down thinking that it was going to recover. I should have sold either premarket or five minutes after the open to minimize losses. I bought at 0.76 at the previous close and could have sold at 0.74 for a small lose but I ended up selling at 0.66 for a lose of $100 on a small position of 1,000 shares. Great lesson though. Thanks for sharing. It gives me strength knowing that I am trading the same ticker you at the same time without even realizing. It also tells me that I have mastered the art of trading and that I can do my own trades.

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  9. Do you ever have a fear that mm will manipulate the stock against you ? (especially holding this kind of position) I am also curious how do you determine the optimal size of the position for a certain stock.

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  10. Was in the exact same position, albeit smaller. Had a chance to cash out at .75, but held and hoped. Won't make that mistake again. At least ERBB and MCIG balanced out the losses.

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  11. I guess a lot of traders were not expecting that negative news. You think if the news didn't come out that specific day the stock would have gap up nicely because of the breakout?

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  12. Thanks for posting this man, very grateful.

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  13. Nice turnaround. I could feel the trade happening as I was reading your blog on it.

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  14. Great post, thank you Tim! I always learn something from your post whenever I read it.

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  15. Great insight Tim. I actually read all of your posts. They are very valuable. Im so grateful you post them! Thank you, these make a huge difference for all of us.

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  16. Do you usually get higher % gains on stock promoter picks or stock screener picks? and do you still use stock promoters or you stopped??
    thanks a lot time. you are my inspiration

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  17. got trapped in a brutal gap-down, came out with a profit. *clapping slowly*

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