this week's lesson.
Since the market has slowed down recently, I wanted to talk about how much potential money you can make in 2020 and what has changed in the market this year compared to 2018 and 2019. In 2020, since the market is slowing down, let’s take a look at my performance this month and last month.
Let’s talk about August, where I made close to $221,000. I took a decent loss on this day (8/10/20), I forgot what ticker I traded but I traded it about three times, took a $30K loss on each trade.
This was the biggest loss of the month. Overall, I think I did pretty well on the month. Most of the performance was from the first two weeks of the month. In July, overall, I made close to $452,000, that is much more compared to August where I made $221,000. I posted a few account statements for May, June, July and August. In these 4 months I made around $3 million in profit. If you want to see the account statements, it’s in the previous videos. I did a monthly recap of all the hot tickers from that month, make sure to check it out.
When you want to know how much growth you can have in a year, look at the frequency of the pattern and how much the risk-reward has increased from last year.
When I track a certain pattern, I want to see roughly how many times it happens per year, and the average I can profit per trade/ pattern.
Back in 2018-2019, and over the last 5 years, Gap up short and bounce short happens about 70-80 times per year. In 2020, Bounce short has happened over 130 times already and we are not close to the end of the year yet. We can see the opportunity increased, alongside the volume in the current market. Once we track how many times the pattern happens per year then we will want to look at the risk-reward. Typical shorting risk-reward is about 20-25% without warrants being executed in the market. Going Long you can win up to 60%-100%. I have made many trades in 2020 where I made over 100%, sometimes over 300%, this type of reward has increased.
In 2020, there were many opportunities compared to 2019 and the reward increased about 50-60%.
If you are a beginner you want to stick to one pattern, I suggest tracking the frequency of the pattern per month. You want to start with a small increment at first (how many times per month) then you will be patient enough to wait for that opportunity to come to you, instead of chasing a trade where you might lose money. After doing the research to see how many times the pattern occurs per year and the average you can make from the pattern, you want to go into the details of the pattern because when the market changes there will be shifts in volume.
Volume is the major indicator that can increase the patterns winning percentage.
Let’s look at the bounce short, the more volume that can trade into resistance will cause more back orders. The more people trading in and out in one day gives you a better chance of winning because most of the people trading don’t have the knowledge to trade the market. This means you will increase your winning percentage on your shorting pattern. When you’re shorting the 2nd green day or a multi-day runner, you don’t know where the limit is before you gather all of data. Back in March & April I took larger losses, around $80-90K because I didn’t know the limit of the market and how much volume could potentially increase, let me give you an example.
The average potential volume traded intra-day can be around 100-200 million.
At what time does the stock trap enough back orders for the stock to go down?
Typically, the morning volume would be around 20-30 million in 2019. Going into 2020 the typical volume traded in the morning can be between 60-80 million, you want to look for that volume first, before entering a stock. With the market change, the amount of volume will tell you the maximum number of back orders we can see today, before shorting the stock. We want to know this so we can increase our winning percentage.
Studying the volume is very important. This is how to really value how many back orders can be trapped in the morning, by reading the average volume. The second method you can use on the volume, is to track the maximum volume you can get in one day. On average we are getting 100-200 million in volume a day, but the maximum is around 400-500 million. When a stock gets to that point the stock is really overcrowded and is likely to drop.