Momo Traders

by Brady Dahl

  What other mistakes do rookies often make?

  Overtrading. Trading when there’s nothing out there. They’re so anxious to make money it’s a detriment to their trading. It’s deadly.

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  How do you judge success in trading? In life?

  I think success in trading all comes down to money. It s an easy way to keep score. Success in life, on the other hand, comes down to how generous you are, what you do with your money, how happy you are outside of trading. Day traders can make a lot of money, but it’s what you do with it that matters.

  What do you think when people say you have to be a robot or emotionless to trade?

  They have a point. When you let emotions get in the way, bad stuff can happen. You shouldn’t trade unless you’re mentally steady. I’ve been at it for 10 years, so I know what happens when I forget that.

  There are consequences. If I didn’t sleep well, or there’s a traumatic event, or maybe I lost huge the day before, I might not even trade that day. If your emotions are out of whack, it’s not good to trade.

  Do you have trading friends who you interact with daily?

  Now, yes. A network of maybe five or six guys that I talk to every few days or so. But I’ve never been a trader who relies heavily on other traders for ideas or things like that. I just didn’t learn that way. If I put on a trade I want to do it because I feel like it’s what I should do, not because somebody else is doing it. I never want to be too influenced by others so I try not to get too attached to what they’re doing.

  It’s better if the trade is yours, if you own it…

  Exactly. Then I take responsibility for the win or the loss.

  What is the public’s biggest misconception about trading?

  That trading is evil and that traders serve no purpose. Some people are even pushing for a financial transaction tax, which is ridiculous.

  Traders provide a living for themselves and others. I probably spend $30K to $50K in commissions alone per year. I pay for chatrooms and

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  services involved in trading. I pay a ton of taxes and create a lot of jobs. People don’t realize that it’s an honest living.

  If there was one thing you could change about the market, what would it be?

  I’d make it a more level playing field. You hear reports all the time about high frequency traders, hedge funds, or basically any “big money” entity getting information early, giving them a huge advantage over us. We’ve all seen stocks spike on huge volume two or three seconds before news releases are published. I can’t say for certain that people are cheating, but where there’s smoke there’s usually fire.

  What’s your goal for the next five to 10 years?

  I want to have enough money set aside to be able to not work if I don’t want to. I don’t think there will come a time where I want to quit trading, but I might want to take a summer off here or there. Sure, I probably have enough money to do some of that now, but I don’t feel comfortable doing it unless my money is working for me elsewhere. Trading is stressful. You grind away day after day and you might make money or you might not. Even the big winners start out as big losers sometimes, so it’s stressful. Plus you never know what’s going to happen in life. Can you live comfortably on your savings if you suffer a disability that prevents you from trading? A second source of income could alleviate some of that concern.

  How do you handle that stress now?

  It’s not easy. Working out daily de-stresses me tremendously. When I work out I’m in a good mood and I come home in a good mood.

  That, and playing with my son are the two things that can completely take my mind off trading. Staying busy helps too. If I m just sitting doing nothing, my mind will be on the market, so you have to get your mind on something else.

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  Anything you’d like to add?

  I'd just like to stress to newer traders that there are no shortcuts. To be the best trader, you have to have the whole setup. You have to have the right brokers, the right tools, the right chatrooms, the right screeners and scanners, and all of that comes with experience. It takes time. The longer you trade, the more you trade, the better you’re going to be. Simple as that.

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  The Rock

  “I became rich when I realized every OTC stock is a scam.”

  Bao Nguyen (@modern_rock) is a 40-year-old trader from the Bay Area who made the bulk of his fortune trading penny stocks on the OTC bulletin board market.

  His family came to the U.S. as refugees from Vietnam when he was 5 years old with nothing but a “determination to work hard and kick ass.” His father worked as a technician, and his mother went to school at night and eventually became a drafter for Stryker Corporation.

  Since his career began, he has been banned from routing to certain market makers, won battles with high-frequency trading algorithms, and turned $50K of home equity into over $10 million in profits.

  These days he can be found on Twitter spouting trading wisdom and exposing FURUS, or fake gurus, to the delight of many.

  Where did you grow up?

  When I came to America, we lived in Portland, Oregon, where a black guy named Ray Ray and I were pretty much the only minority kids. We got picked on all the time, so throughout childhood I despised the Asian/immigrant/minority label. It was a huge chip on my shoulder,

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  bur it drove me. I knew I would grow up to become their boss someday and then fire them.

  So you were a determined kid…

  When I was 15 I started working for the company my mom worked for called Stryker. Of course now it’s one of the biggest companies in the world, but back then 1 didn’t even know who the hell they were.

  They had less than 300 employees. Now they have 22,000 employees.

  What did you do there?

  I had the dirtiest job. Stryker is a medical equipment company and I worked in the shipping department. If an endoscope broke somewhere, Stryker would send out a loaner, and eventually it would come back—after it had been inserted inside people’s bodies. And it would stink horribly. It was my job to stuff it into a bag and label it.

  Where did you go to college?

  I grew up in the hood, and we had no money, but I was a smart kid. I studied. And back then, as an Asian, you could only be an engineer, a doctor, or a lawyer. I figured out which one required the least amount of schooling and headed to UC Davis for engineering, (laughs) And somehow the engineer turned into a trader…

  After college, my goal was to make $100K per year by the time I was 30 years old. But when I got my first job working for Bechtel engineering, the largest private engineering and construction company in the world, I found out the guys who worked there for 30 years were only making $100K. And these guys had PhDs. They were the smartest guys on Earth and they made $100K. So I quit to join the dotcom revolution that was happening at that time. It was the dotcom era, and I got a job as a programmer for a startup company. Suddenly here I was in Silicon Valley and everybody was talking about stock

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  options. It was the wild, wild west over here on the West Coast because nobody knew shit about stocks really.

  This was mid 90s?

  I graduated in 1996, so around that time. The late 90s to early 2000s.

  We were trading fractions.

  So everyone was talking about stock options at work but really had no clue…

  Basically everyone thought you buy stock, hold it, and hopefully sell it for more. It was pure gambling. Everyone just bought shit and hoped.

  And you joined in?

  I opened an account with $2K and started to gamble. It was a straight up gambling fever. I had a good job which fed me more and more money to put into my trading account, and there were no pattern day trader rules back then, so I could trade as much as I wanted.

  Did you have a strategy?

  As an engineer I was very analytical, sol crea
ted what I thought was a system. It was based purely upon earnings releases, and I would try to guess the direction the stock would move.

  Wow, earnings, so you were really gambling…

  (laughs) But I thought I had a strategy. Turns out it was pure gambling, of course. But my first trade was a very profitable trade. I made like 30 percent trading Silicon Graphics on earnings. I bought right before earnings and it worked. I thought, damn, I’m good at this.

  % first job out of school was $40K a year, so making $600 on one frade was great money. Obviously my earnings strategy over time Would get pounded, but I was hooked. Nobody had high-speed

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  Internet at home, so I would get to work early every day to trade stocks. My boss thought I was a diligent worker.

  Where were you working at the time?

  A startup software company that eventually got bought out by a European company. Then that European company went from a $3

  billion valuation to bankrupt within one year and got acquired by Fair Isaac. Meanwhile, those of us working there were living the life. I switched from programmer to sales engineer and eventually moved to New York. I had a cushy job which afforded me a lot of free time, and everyone in New York was day trading, so I thought I’d give it a shot.

  How did you do?

  I pretty' much lost my entire bankroll twice. But I was making like $250K a year at my job, so I had money to dump in.

  So you kept feeding your accounts as you’d lose…

  Yeah. I lost because I didn’t take it seriously. It was more like sports betting for me. It was fun and I got a little adrenaline rush. I would put in 20 grand and lose 20 grand. Then do it again. I would trade the open and the close, then schedule all of my work meetings around that. I loved trading, and I could actually make money consistently.

  But it was always one trade that would take me out. It was always one stock that I wouldn’t sell and end up averaging down to zero. I remember a 10-cent penny stock, GBLX, that doubled or tripled within an hour, and my $25K account ballooned to $40K. I thought if I just held that stock I was going to be rich. Before I knew it, the price started tanking and I m left with $10K in my account.

  You couldn’t get out…

  There was no way to get out. In fact, I think I just bought more. That’s how you do it when you’re a beginner. You think it will go back up. It

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  was a classic penny stock pump and dump, the kind that’s still happening today. “Investors,” aka suckers, get killed.

  And you were primarily a long back then, right?

  Yeah, back then you couldn’t really short these pump and dumps.

  Only market makers were shorting them. But I would long stuff like that all the way to zero. That’s how I lost all my money twice. Then I finally decided to take trading seriously. I knew the one problem I had was holding onto losers. It was always one stock that took me out of the game. I mortgaged my house and took out $50K to try trading again. Only this time I knew I could not lose that money, because I’d lose my house if I did.

  Scary proposition…

  Yeah, but that's how I became successful. I started playing like a chicken shit The fear of losing stopped me from making those same mistakes again. I had no choice. I had worked all my life up until that point for that house. So I went back to trading what was working and avoiding huge losses. I went back to my bread and butter, which was buying overnight positions or gappers. I was still working then and only had time to trade the open and close. So I basically created a system for finding stocks that were strong at the end of the day. I’d buy them and wait for the gap.

  Wait for the stock to gap up in the morning and then sell…

  Correct I did that for the longest time and built my bankroll. I loved day trading. It was my passion. It was less about the money and more about the challenge. So I gave myself a goal. If I could make $500K, I would quit my job. How could I quit a job where I was making 250K+ per year? I figured I’d have to save at least two years salary first in order to do it. Using the same strategy, I grew that $50K to $500K within three years.

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  Can you explain the strategy a bit more?

  I started with $3K positions because I had a small account. I would buy five to seven positions a night to diversify. I scaled those positions up to more like $10K each as my bankroll increased over time.

  Why five to seven positions?

  Basically I would buy as many stocks as there were plays. I would run my scan and buy however many stocks matched my criteria for gapping. I could have 10 positions overnight if necessary. There was really no dollar or account value limit. And $3K worth of a stock was just enough to stay under the radar and not move the market. I could be invisible getting in and out. I kept it small and diversified. My goal at the time was just to make $1K a day. I had a phenomenal strategy for such a small account.

  But that strategy doesn’t still play today, does it?

  If the penny stocks were back in play, it would.

  So it was mainly OTC stocks then…

  Yeah. And I grew that $50K account to eight figures trading the OTC.

  After I quit my job, I was banging out $300K to $500K a year trading for the next few years doing that exact same strategy. I was very risk averse. I got to the point where I was very comfortable making $500K

  a year with zero risk. And I mean zero risk.

  Zero? You’re going to have to explain how you did that…

  Zero risk basically meant that my position size was never large enough to affect me in the event of a loss. I asked myself, if this stock goes to zero, will I survive? I played the size I was comfortable with while assuming the stock would go to zero. Each night I was probably only using about five percent of my capital.

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  Per stock or total?

  Total. Imagine a $500K account where you’re taking 10 positions of $3K each overnight. That’s only $30K total.

  I see, so it didn’t matter if you lost all $30K…

  Yeah. But chances are I’m not going to lose on every single position, right? That’s why I diversified by buying several stocks. I’ve seen friends put all their money into one stock and then it goes to zero. I always say you only need to get rich once, and don’t let one stock take you out of the game. So I never got greedy. Although looking back, maybe I should have. Imagine if I had just tripled my sizes all those years. I’d be filthy rich, right? I was making $500K a year on only $3K

  to $5K positions. People nowadays are loading $100K positions.

  But $100K positions wouldn’t have held to your zero risk idea…

  Right. If I loaded up $100K and something went wrong with that stock, I’d be dead. Whereas losing $5K wasn’t a big deal. Once I reached $500K, I quit my job and paid off every single debt I had, including my sister’s debt and my parent’s debt. Once that was taken care of, I realized I could probably start risking more. I started trying to grow my account like it was a video game. I didn’t want to spend it.

  I was making $500K+ a year and still driving a shitty car.

  And the video game score has since reached over $10 million…

  Yeah, cumulatively over the lifespan of my trading I’ve made over eight figures. The last four years were each seven-figure years. In fact, my strategy was so good I taught only one other person, and he did the same thing.

  He made millions doing it, too?

  He made around $8 million simply following my strategy. But I taught him because I needed his help doing my scans and stuff. It actually

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  became difficult because we traded pretty much the exact same way.

  He became so big he was my main competitor (laughs). Which is why most of the gurus are frauds. If they knew a secret like I did, they wouldn’t sell it for the world. Talk about trying to make millionaires, I taught one guy and he made multi-millions. I always joked about the moment I stopped making money using my st
rategy, I was going to teach it. And now the system doesn’t work anymore, so I’m going to start teaching, (laughs)

  Your strategy doesn’t work any longer because the OTC market is so dead?

  The strategies still work, but yeah, there’s very few plays left.

  It’s amazing it worked for as long as it did…

  Yeah, the moment the light switch went on was when I realized trading wasn’t gambling. When trading was my secondary income, I lost money because I did it for fun. The moment it became my only source of income, I became serious and stopped the bad habits.

  When you took it seriously how did you educate yourself ?

  I met a friend in New York who ran Stockgappers, the original chatroom for this type of trading. I have to give him credit for starting all this. Me, Nate, everybody was in there. His strategy was a very simple one: buy stocks at close and sell at the open. That’s why he called it Stockgappers. I watched him and eventually created my own strategy. Everybody has a different criteria of what to buy. I found what worked for me and kept doing it.

  Did you ever backtest your ideas?

  No, it was just trial and error. I think the key was diversification, I could see what worked and what didn’t, which led to developing the pattern I milked for 10 years. In fact, it worked so well I had one year where I only had seven red days and another year where I only had 12

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  red days. And I traded every single day. You do the math. There are about 250 trading days m the year. Imagine a guy with a record of 243

  wins and 7 losses.

  Not bad.

  I became so consistent my broker was watching my account and copying my trades. I couldn’t take a vacation, either, because every off-day was a $10K loss in my opinion. I’d lose money not trading, and I’d lose money paying for the vacation.

  Opportunity cost…

  Yeah, and it was so easy. My strategy felt like I had found the secret.

  Were you still only trading the open and close, even after you quit your job?

  No, I started trading during the day, too. I held gappers into the open and traded around those positions the rest of the day. Scalping.