this week's lesson.
Today’s topic will be about the methods used during the hot season when stocks are up 1,000-3,000%.
When we start getting into October-December, we see stocks take off, and because of these substantial percent increases, strategies need to be changed. It’s better to be very selective with your stocks during this time because patience is key when using different patterns, and I want to look at some examples to explain better.
Starting with $VIVE, this is an example of a stock that’s up for no reason.
When a stock doesn’t have legitimate news, you have to be careful of intra-day offerings, even if you see a stock gapping up in the morning. For traders who have a biased for the long-term, this is a good start, but companies tend to be looking for funds during the hot season if their stock is burning up without cause. $VIVE ended up dropping 56% from its close on the previous day, which can only lead to reverse splits to meet NASDAQ.
I want to follow up with $BNGO and $ASLN.
Two very similar tickers with the same float, market cap, and behavior. We see with both tickers that they went parabolic in the morning before being halted and then repeated that action. When you’re trading into a stock that’s halted, the spread is going to be massive whether you’re going long or short, and having that large spread means for poor execution. People begin to think much differently when a stock is irrational and up thousands of percent, making those panics and parabolics harder than usual to navigate. When a stock is already parabolic, I won’t short into that; however, I’d wait until the parabolic is finished and drops 50% of the entire gain before finding that entry.
Waiting for the next spike and then shorting into the resistance will have a better outcome.
$EYEG had a pre-market gain that was lost entirely before coming back to push into the morning and then faded all day.
Because of this pattern, $EYEG can be compared to $NSYS, which pushed, gapped up, and pushed again before fading back. When you have a stock that’s trading sufficient volume in the pre-market, this indicates that there will be volume coming in after the market opens. Now, the difference between these two tickers is that $NSYS pushed about $0.50 at opening, and $EYEG didn’t reach that 20%. I wouldn’t recommend using this type of pattern for beginners because you don’t have enough statistics to know whether that push will be 5%, a straight dump, or a 30% push in real-time. Having too large of a range means there’s too much risk to control if you’re not on top of your game.
With the hot season comes an incredibly active market which is dangerous to short.
You’re seeing traders become emotional during the holidays because they need to make money, and with irrational trading comes unpredictability. As I’ve said before, patience is your most valuable asset, especially in moments like this, because your best position will be when actual resistance is formed after that first wave of people gets trapped. From there, you’re using those trader’s psychology to develop a strategy that continues to use their psychology to make money; this is how you use the backend of psychology to trick gappers.