I am going to go over a few trades I’ve done to teach you how to filter out trades you don’t need. An important thing to focus on is making sure you have the right setup. You shouldn’t be taking trades that don’t meet the right criteria. If you do take those trades, you end up risking a lot. Let’s go over a few examples.
BOXL was a risky trade because the stock didn’t jump up that much. It had no volume premarket, and just started parabolic into the 4.1. The stock didn’t really have any percentage until about 4.1. There’s decent consolidation resistance around $4.00. I shorted in at $3.70 and covered in when it broke $4.00. It ended up being a really bad trade, but luckily it wasn’t that big of a deal, though I didn’t trade it again because the volume was getting too crowded.
If the volume starts getting overwhelming, you should stay out of that trade. For example, one day I traded about 25 million, and another day I traded around 15 million; a 10 million volume difference. If the volume starts to get overwhelming, I stay out of those trades and wait until the stocks show the first red day.
In the case of this trade, BOXL wasn’t really up that much, which is why I didn’t short in after the first red day. I just skipped it and went for something else. Sometimes it’s hard to find the resistances; if it ever gets to the point that you feel it’s too risky, it’s worth it to just cut your losses. Don’t just sit around waiting and hoping, because some of the parabolic can go straight and bust through the resistance. When that happens there’s nothing you can do. You sit there waiting for it to come down, but it’s way above what you wanted to risk, and you end up risking a lot more than you expected.
Sometimes the stock sizes too much. They add on the way up, and that’s how they blow up. That’s why I tend to stay away from those risks, so I don’t make those mistakes. If it reaches the max level that I expect for a specific trade, I cut it immediately without hesitation. Staying disciplined in the market will always lead to the right decisions and help you stay rational.
The next trade I’m going to talk about is AVCO. The stock went from 5 to 13 and showed very little resistance, and then it trended down from 13 to 4. You can’t really see any consolidation resistance on this particular day. Shorting the 6 is not ideal because the risk range is way too high. Probably the only consolidation resistance I see on this day is around $10.00, but that wasn’t enough resistance to justify shorting. All these trades win a parabolic — and it’s not a bouncer because it doesn’t have enough volume consolidating a certain resistance zone.
RTNB was a similar chart, but it behaved very differently. You can see in the chart the stock trading at about $5 million, and then suddenly a bond overwhelmed and broke through the resistance. Then it came back down and broke the resistance again. These trades that don’t really have a certain consolidation level can be really choppy, which makes it hard to find when and where they’re going to top out. If you can’t find where they’re going to top out, then you’re risking a larger range of outcomes which makes it harder to identify what risk you are actually taking. It’s better to have an idea of where they’re going to top out, so you don’t risk too much.