Let’s talk about trading bio-tech hypes, with information from a few trades I’ve done.
We’ll start with BPTH. This one was the lead for this week, going from $3 to $70. And this one is really difficult to trade right now, it looks like it’s already exhausted. There was a decent swing earlier on if you got it at a $35 position. Taking a look at BPTH, this one actually traded a lot more volume than it did before. It probably more volume than any other similar tickers, more than RKDA and DXR. BPTH traded almost 40 million more in the $70-ish, with an average volume, or average trade prices around $50. When the stock value drops about 50% of its total gain of the day, it’s really hard to short back into again.
RKDA went to about $66 on this current day before this bounce. Because it’s not very far from its high point, it still has room to drop and fade. Looking back at BPTH, the stock already went up to $70. If you did try to bounce, $40 is way too far away from $70, so it doesn’t really have that much room to fade. That’s why RKDA doesn’t give you a good short term return on the short. It’s better to commit to long term and wait for it to fade. I don’t think there’s a good risk reward for people who are shorting to the 40’s because most of the supernovas drop about 75% of their total gain. So if it hits about 27 that’s already 75% of its total gain. In the short-term, the risk is not worth the reward.
Next let’s follow that up with AKTX. This one trades at about 100 million shares a day. I didn’t personally touch this one because it was on an uptrend the entire day. This one specifically shows you how crowded stocks will really react. Sometimes the stocks crack and they don’t really panic in the afternoon. In this case, it turned down the squeeze all the way to 10. Then when it started to lose volume, the support cracked out of nowhere because there weren’t very many people trading there. Now those are sympathy plays, and because they are sympathy plays they are not based on that much volume. A lot of people just blindly buy biotech stocks, which is why the support doesn’t really hold that well. So later on if this one bounces again, like if it fades back to 2 and then bounces back to 5, you’ll get a really good bounce short.
ATOS and SLNO
Same thing for ATOS and SLNO, all of those tickers have a really similar market cap. ATOS is the same, trading at about 100 million shares a day. Looking at the data entry chart, this one cracked and was around 2 cents before losing all of its momentum, it turns out you squeeze up and gap back down. Looking back at AKTX, this one gapped up. People traded ATOS thinking it would react like AKTX, and the second day ATOS just kept going straight up and went to -50%.
Now look at SLNO. This one trades at similar volume and similar cap. The flow is a little bit bigger than ATOS and AKTX. This one cracked in the afternoon and then dumped straight back down to where they started.
With AKTX, ATOS, and SLNO, it’s almost all emotional trading, with very little edging to it. That’s why I don’t want to invest big in those. It’s better to wait for them to come down and set up a specific resistance, because when the stock gets crowded it’s super hard to predict where it’s going to go, whether it’s going to dump in the afternoon, squeeze in after hours, or squeeze in the afternoon. Those three scenarios could all happen if you want to go long or short. There might be more volume for these three going into the following week, but looking at them now, they all look dead.
Trading Based on Psychology
I specifically teach people not to chase SLNO in the afternoon because people are expecting a reaction like AKTX and ATOS, and I tend to see a very similar way of thinking emerge. First BPTH brings a bunch of people into bio-techs and people think, “okay, the bio-tech sector is hot, I’m going to buy it, I’m going to chase it.” Here’s one example: people short into the crack, and it gets short squeezed and gapped in the second morning. So now people think AKTX and ATOS will do the same thing. They’re thinking “okay it cracked, I’m going to buy it, and if it squeezes it will be hours later.” So a lot of people bought into the close. Because 90% of people are leaning one way, the stock performs the opposite way. And the second day it actually gaps down because most people are leaning towards it and expecting a gap up. But when the stock drops 50% and cracks the support, it traps a lot of people and also gives them false ideas. They think, “Well I don’t want to buy into the afternoon closing anymore, if it cracks I’m just going to sell,” because they saw ATOS gap down. People use the same mentality with SLNO. They say, “Well it’s not breaking down in the afternoon and I don’t want to hold overnight, because I’m not expecting SLNO to gap down just like ATOS. It always dumps in the afternoon.” People use the same thought patterns with different stocks. It’s really hard to predict, but after you look at the ticker and see that the same thing happened about three times, you can see the way that people think changing, which you can use as future data.
Trading based on psychology doesn’t really work. The best and safest way is just to wait for the stocks to come down, and there are plenty of back orders holding AKTX, ATOS, and SLNO. So if they’re holding, if there’s a squeeze coming, there’s definitely going to be a bounce and you can use other people’s psychology against them. It’s much easier simply trying to predict what other people will think.
That is the conclusion of AKTX, ATOS, and SLNO after BPTH. Number one, don’t trade into crowded stocks. Number two, don’t try to predict if there’s going to be an afternoon dump or an afternoon squeeze. Either wait until they lose volume, or wait until they lose their entire gain and go after their bounce. In the morning for crowded stocks they have a high chance to squeeze. Like we saw in the examples, ATOS didn’t really squeeze, it was getting stopped all day, and AKTX squeezed.
You can usually predict that if a crowded stock gets volume in the morning it has about a 60% chance to squeeze. But predicting what will happen after a panic is pretty much impossible. That’s all for now, for more helpful tips and tricks check out my YouTube channel, and click here to find out how I turned $27,000 into $3,000,000 before the age of 24.