1. Timing is everything

Any great trade requires two main parts: prediction and timing itself. Both need a proper alignment if you want a profitable trade.

Correct prediction is not enough. You also need to be at the right time!

For example, if you predict a market crash, you need to be accurate with when it will happen. If you were predicting a crash and the market ran 100% before plummeting 50%, then your prediction is completely worthless.

Only traders who choose the right time can benefit from predicted events.

2. Expectations about things not to be expected

As traders, we love to trade "outlier" moves - moves where stocks experience exceptional volatility and liquidity. Although stocks experience moves that are considered "exceptional" compared to stocks in the same industry, these moves are not without precedent. In fact, we see them almost every day (especially in this market).

Outliers are really quite common and traders should learn to expect surprises.

3. Don't go against the trend

The market is always right.

Write this down and don't forget it!

You don't necessarily agree to the price action or believe the action is justified, but you must respect it. Fighting the trend is a recipe for disaster!

Is the move on stocks like GME and AMC reasonable from a fundamental analysis point of view? Are not! But, do you want to be a short seller before that fierce short-squeezes? Definitely not ...

The same logic applies to the other side of the move (the buyers). When the party is over, you definitely don't want to be a crybaby trader, right?

Pay attention to the stock's trend and make sure you are on the right track.

4. Better late but right than sooner but wrong

Short sellers are those who feel the need to guess the top of a parabolic move in order to capture as many bearish pips as possible.

However, guessing the top (bottom) is a stupid game!

Again - Don't trade against the trend!

When a stock reverses a trend, you still have plenty of opportunities to catch a new trend. What you sacrifice in precision (ie capturing the correct vertex), you will compensate with certainty.

Probability trading in your favor is well worth trading with a better entry point of just a few pips (especially when you guessed the top off and are more likely to be "overrun" by the market).

It's much better to get in late with a trade with a 70% chance of going in your favor than going in early with a deal with a 70% chance not in your favor - especially in the short - where The theoretical risks are limitless. You should be 1-2 pips late rather than early 10-20 + pips.

The GameStop trade is still ongoing, but here's an example of a stock that has had a great turnaround for the short-sellers. What do you notice?

Once a stock reverses the trend, it goes straight down and has plenty of low-risk trade opportunities with a higher probability of winning.

5. Avoid FOMO

When we discuss trading tips it is important to point out that "NO trading" is also a great choice.

Sometimes, the best offensive behavior is a good defense. Sure, you won't make any money, but you won't lose any.

When stocks hit the headlines, you might be tempted to step in. The FOMO will trigger and you feel the need to take part in what could be a life-changing trade.

However, it is a sentimental strategy, not a logical trading strategy. Check it out!

Sometimes the best play is standing out so you can trade another day. If you don't understand a move, avoid it. Know where your advantage lies in acting.

Can you imagine short selling a stock at $ 50 and watching it skyrocket to $ 500 in the next few days? Or buy a stock at $ 500 and watch it plummet to $ 100 in just a few hours? When faced with these difficult situations, you will definitely wish for the price you crossed your arms and avoid trading altogether.

If you have FOMO, wake up quickly and accept that no trading is also a worthy position to choose.

6. Ignore the hype

Exaggeration can cause both FOMO and deep fear. If you hear a stock at $ 100 and about to rise to $ 1,000, FOMO will begin to benefit the outsider traders and fear will creep into the traders on the sell side of the trade.

Exaggeration, by definition, is also understood as an exaggeration. If you find yourself believing or talking about ridiculous, emotional statements, then you may need to get off the train at the next stop.

Efficient transactions need to be based on logic. Of course, all speculations are uncertain, but not all speculations are equally reliable. Extreme speculation is "hype" and should be avoided at all costs.

7. Know who you are dealing with

The trading activity of the past week serves as a reminder that, as a trader, we should not trade alone in our own mind. We are dealing with other market participants, all with their own unique thinking processes and strategies.

Thinking about every trader out there will drive you crazy, but it can be very helpful to think about other market participants, as they can influence the direction of a trade.

This is fairly obvious to a group of traders trading "story stocks" (stocks that yield potential returns, and the potential is predicated on a trust basis), while others simply follow suit. price action.

An enthusiastic group of shareholders can influence the way a stock is traded. Think of some of the most widely discussed and volatile market dynamics of the past decade.

The Bitcoin/cryptocurrency/blockchain story appeared during the dinners of traders. Or Tesla, the story of Elon Musk - a genius with the revolution of the auto industry ... They will all affect the direction of trading assets.

While stories like this are not entirely responsible for any stock price action, they certainly did affect the way people trade stocks like GME, BB, NOK, and others. other stocks.

8. Understand the short-squeeze mechanism

There is no questioning the fact that last week's rally was strongly driven by a short-squeeze (forced buy to close sell orders). This isn't the first time this has happened, and it certainly won't be the last.

Traders need to understand the mechanics of a short-squeeze in order to better understand when a seemingly irrational upside might emerge.

When investors short-sell a stock, what they borrow is shares, not money, so later, they also have to buy back the shares to pay the broker.

Covering has the same effect as entering a long position, ie it will push the stock price higher (based on basic supply/demand principles).

This type of trading activity occurs on a daily basis, but when the stock is heavily shorted, a short-squeeze can ensue.

Traders should know the preference of short-squeezes so they can recognize when a stock can be susceptible to increased short-squeeze volatility.

It's important to understand what happens after the short squeeze. Once the trade is closed and the majority of the short sellers have to buy to close their sell orders, the basic economics will get back to work and stocks lose momentum.

9. Never underestimate a move

Most traders can accept the fact that the market is not completely plausible. Some markets may go so far that they will be rumored to be "fraudulent".

Even though most traders embrace this philosophy, they still find themselves making inappropriate moves (and reacting to it).

Remember, the market doesn't care what you think. Stocks never go "too much". Everything is going exactly as it should be - proceeding until it is complete.

If you find yourself shorting a stock because it has "gone up too much," your argument is still flawed.

As mentioned above, you need to avoid countering a trend and realize your job is to predict market irrelevance and trade against it.

10. Don't get caught up in greed

Many traders become blinded by greed. They believe in hype, start visualizing life-changing fortunes and trading on emotions.

If you find yourself caught up in a 1,000% upside position because you think it can run 2,000% then you may be affected by greed.

Likewise, if you enter a position in a stock that has risen more than 1,000% hoping it will continue, you could suffer no different effects.

This does not mean that you should not buy a stock in a parabolic move. or should not sell fast out of fear. The antidote to greed is a game plan that is methodically unaffected by emotions.

11. Use appropriate position size

Unusual volatility requires the special discipline of the trader to survive in the long term. Therefore, risk management becomes more important than ever.

You cannot control the risk of the market, but you can control your level of risk. One of the best ways to control risk is to control the size of your position.

If a stock has the potential to lose $ 100, a long position to buy 100 shares carries $ 10,000 risk and a long position to buy 1,000 shares equates to a risk of $ 100,000.

Here's an example of how your position size can be used to manage your risk:

If the size of your position makes you risk so much that you feel uncomfortable, then you are trading on a too large position. Smaller positions allow you to enter into a move without incurring uncontrollable risk.

12. Cut loss quickly

"Stop loss fast" is one of the first trading rules for new traders. It is also one of the first rules they break.

Almost every veteran trader repeats the mantra "Cut loss fast, cut loss fast, cut loss fast" like a disc scratched!

Unfortunately, to come to this lesson, most traders have a hard time remembering it. They need to feel the despair of an angina loss before they can memorize the lesson.

When faced with an uncontrollable loss, many traders begin to rationalize their reason for loss. Factors "What if ...?" It starts to appear: What if I sell it now and the stock rebounds right after?

Some traders go through this process and then see a break in the game shortly after.
Give your account a favor and keep yourself in the game. Most uncontrollable losses just got worse and worse!

When you trade a volatile stock, risk management is no longer an option - it's a must!

13. Partial profit lock

In trading, unrealized gains are also not your gains until you take profit.

Many traders become millionaires overnight and return to their office jobs just because their unfinished profits have evaporated. "Buy and hold" is not a strategy that works effectively on stocks with momentum and volatility.

Lock the profits to where, or go there.

You don't have to take all your profits all at once, but you can take partial profits. Stocks up 500%? Sell some stock. Shares rose 500% more? Sell a few other stocks.

14. Be aware of when to suspend the trading

When stocks are subject to volatility, they can also be suspended from trading. When a stock is "suspended", the exchange freezes trading, meaning that no one can buy or sell for a specified period of time.

It could resume its insane momentum, or it could plummet as traders rushed out of their positions.

As a trader, you should know when a security can be suspended from trading, so you can decide if you want to hold a position during that period of uncertainty.

15. Choose broker wisely

Many amateur investors and traders see brokers as a thought after action. As long as they can buy or sell stock they are interested in, nothing else matters. Until...

Many traders have painstakingly learned this lesson over the past week, as some brokers restrict the buying activity of certain securities. Many traders were forced to leave their positions even though they had sufficient capital. Obviously brokers actually have a lot to do with your trading.

Although this move is unpredictable, it highlights the importance of having a good broker.

16. Remember Gravity

We talked a lot about hype and FOMO throughout this article. While they may motivate stocks for longer than most people expect, one thing's for sure - it actually happens, after all.

The motion of the parabola obeys the law of gravity - what goes up must go down.

Whether you are a bear or a bull, you need to keep this in mind. Every erratic move has a top / bottom and you wouldn't want to be the ultimate hated trader, would you?

Here's a Bitcoin chart from 2017-2019, up from $ 1,000 to $ 20,000 - then down to $ 4,000.

Here's a chart for the NKLA from 2020 to this - up from $ 10 to $ 90 and down right down to $ 20.

And KODK...

And DRYS...

And SPCE...

This is not "a trick", it's just how these transactions play out ...

Parabolic movements (especially those that have no basis) are unsustainable.

The hype is sure to die and the market will move on to the next big thing.
As a trader, realize that the party will end at some point and you should plan accordingly.

The recent move is positioned as a battle between "US and THEM" (retail trader vs. fund trader). The movement was effective during the move, however ...

The truth is, retail traders are the ones who get hurt when things go down. Yes, a few hedge funds have been burned, but retail traders will be the ones who lose everything.

Top buyers will see 50-80% of their investment dissipated. All of them are interesting games and are on the rise, but in the end, there will always be someone with a hole in their face. Don't let you be one of them.

17. Take away appropriate insights

Every trade has 2 chances (and they are not mutually exclusive):
  1. Opportunities to make money.
  2. The opportunity to learn a lesson
The first chance will only make you money once, but the second will continue to make money for you for the rest of your career.

As traders, we want to be right, but we also need to be right for good reasons. When right for the wrong reasons, you can still make money, but it will potentially lead to great catastrophe in the future.

Take the GameStop trade as an example.

If you entered into this transaction because you think the company will see an increase in sales thanks to the launch of a new gaming machine, you might be surprised by how profitable your "thesis" is. .

Unfortunately, your argument is not correct. Other factors come into play, however, and you've been lucky with predictions of a stock rally.

If what you learn is that you have the ability to predict the company's performance at the level of Mr. Buffett, then you are seriously mistaken and potentially burn out your account in the future.

If the example doesn't weigh enough then take another example that doesn't have to do with stocks.

Suppose in a multiple choice test you choose "A" for every answer and you are 100% correct. If what you pulled out was "all the answers on multiple choice quizzes are A", do you think you will be correct in the next puzzles?

Whether you made money or lost money in the last week, take a step back to focus on why. What did you do right and what did you do wrong? Your goal is to find an effective way to replicate that success the next time you trade.

18. Ready for NEXT trading

Did you make money last week? Happy for you...

Did you lose money last week? Sorry to hear that ...

Regardless of which side of the P&L chart you find yourself on, it's time to move on to the next trade.

Winning - next step ...

Defeat - keep moving on ...

Your full attention should always be on the NEXT trade. How do you plan to make the next profit?