What Are Crowded Trades?
When a trade is “crowded” it means that the daily volume is traded at a volume of over 30 million. This type of trade is considered crowded because it requires you to make a lot of hard decisions. A lot of people want to make a bunch of money so they can spend time with their family on Christmas, so we tend to see a lot of irrational trades, manipulations, and crowded trades. When you see the volume trading at 30 million shares per day, just forget about it. Don’t even touch tickers like that. Wait until the ticker shows a decline the next day, then go for it. Once you commit to a crowded trade, it’s very difficult to exit.
Take this one from $3.00-3.60 for example, it’s 60 cents, so you don’t really have an asset to cover your shares. This puts you in a situation where you’re instantly down 20 percent or more. That’s why it’s not good to short into crowded trades. You really shouldn’t buy into breakouts because you can’t make that much. The only thing you might make is scalp.
What Not to Trade and Why
As the stock comes back down, it looks like it’s going to fade, but it doesn’t. It becomes difficult when the stock is too long or too short. I wouldn’t suggest trading crowded trades in the coming weeks; stay away from those trades as much as possible. The same thing goes for ALQA; if the volume is there and it’s too much, just forget about it. Wait until the next day, it’s much safer than trying to fight into crowded trades. If you fight into it, you will consistently be taking losses, that’s why I always stay away from crowded trades. If I make one or two trades and they don’t go the way I want them to, I take the day off and come back fresh the next day.
This week we had a lot of crowded trades. Today I’m giving you a recap on what happened with crowded trades like ALQA and ADIL. I’ll also talk about the difference between the resistance areas. Let’s get into it.
Comparing the Resistance of ALQA and ADIL
ALQA: Take a look at the two months resistance, you have a resistance of 30 million at 5 with pretty heavy volume. If you look at ADIL, the resistance isn’t that high. When that volume is trading over the resistance volume, it is really difficult for the stock to break down. Yesterday, the breakout level was right around $3.00. I tested this $3.00 area multiple times and finally had a short squeeze at the end of the day. The second day gapped down, but it didn’t gap through $3.00. As the stock gaps down, it’s really hard to overstate the gap down pattern. When you short at $4.00, your cover point becomes a support and you don’t know where it’s going to end. You may end at $2.30 or $2.50, which means you can only make about 10 or 15 percent (and that requires the perfect entry and exit). It’s hard for a stock that has already been squeezed to come back down if they gap down into the major consolidation level. Using an overstated gap down in this situation is not ideal, which is why I didn’t touch it today. Next time you see a similar situation, don’t short it because it will take days to break this $3.00 support. Sometimes you can squeeze over the $4.00 area right when we have another super nova or motive runner again.