by Brady Dahl
Do you set a target before you place a trade?
Not before, no. Usually it’s after I’m already in a trade when I start to look at the chart and find what might be a good spot to exit. I guess I focus so much more on my entries than my exits. I think I developed sort of a bad habit while trading OTCs because watching Level II made it easier to pick bottoms or tops based on what I was seeing.
Nasdaq stocks aren’t like that.
How do you scale out a winner?
Usually I start by taking off a quarter or half of the position.
On the first flush?
Yeah, especially if I shorted into a spike. Then I’m trying to give the rest a little more time to work. If it goes in my favor, I’ll probably take the rest off on the next washout. If it doesn’t go in my favor and starts grinding higher, putting in higher lows, I’m also getting out the rest.
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Do you have set rules for risk management, like daily limits, etc?
No, I don’t really think about those things at all. I just need to know how much money I’m willing to lose if the stock hits my mental stop I’ve never had an “oh shit” number where I immediately stop trading because I always try to trade based off the chart alone.
Do you have a profit goal in mind for each day?
No, I think about it on a weekly basis. I don’t want to put that much pressure on myself daily because I’ll start to force trades. I remember when I would have loved to make $1K per week, then it was $2K, then $5K, and now? $20K (laughs). But the number one overall goal is to have a green week. That’s what matters. And I’ve done pretty well with drat. I think over the last couple years I’ve only had two or three red weeks each year.
What do you think about social media and how should new traders use it?
If some guru alerts a stock, I will treat the alert like a catalyst for a trade. If they can cause a price spike, I may scalp the buy or even short into their spike. But I also follow great traders who might talk about a stock that hasn’t hit my radar yet. Social media is a good way to find tickers to research, but I would never use it to follow someone’s picks blindly. That’s funny because it’s the exact opposite of how I started.
Part of your evolution as a trader…
Yeah, I agree, because new traders often don’t realize that following someone s picks is absolutely worthless and that you can’t make consistent money that way.
What’s your biggest win?
I made $215K one day on FNMA. It had traded the exact same pattern a few months prior where it ran to $1.40 or something, then
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dropped to S.60 before bouncing back to $1. But I had messed that trade up. I bad a good day on it, but nowhere near what it could have been. I was really annoyed by it and ready when the setup presented itself again. This time during the morning spike I shorted it a couple times but quickly stopped out for two or three cent per share losses. I didn’t get stubborn, but I kept at it and eventually nailed the top, which gave me confidence to sit short in it all day. And then it tanked.
So you ended up short from the $5’s somewhere?
Yeah, I was short from the $5’s and it rolled over and started to drop.
But it had also rolled over the day before only to quickly find support near the previous closing price and grind back up all day. So I wasn’t positive it was dead yet at this point. I was watching Level II almost exclusively, no chart whatsoever, and I covered it all near the green-tored support. It fought there for a couple minutes and started to look heavy again so I scrambled to get my shares short again. I may have missed out on $.10 per share between covers and the re-short, but I got back all my shares before it just straight tanked. Then it wasn’t even a question of locking profits in along the way because Level II just looked so perfect. It was just so liquid I could tell when it started to bottom in the $2’s and I covered everything.
So you rode it all the way down…
Yeah, I got out at dead bottom. Then I longed it for the bounce, selling pieces all the way back up, even filling some sells as it topped out. Then I re-shorted it again near $4. So it was really like a three part trade: short, long, short. It was four or five hours of trading for over $200K profit.
That must have been an amazing feeling.
I had to go take a walk, yeah. I was adrenalized yet exhausted. A really strange feeling. At the time I made that trade my trading capital was Probably around $300K, so I nearly doubled it.
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Why did you have so much conviction in that trade?
Because it had ran up for like five straight days from $l’s to $5’s. It was just so completely parabolic. I knew OTCs, and I knew that when it snapped, it was going to tank. I also had the Level II to help me watch for the bottom. If it had been a listed stock, I wouldn’t have done any where near as well on it.
They would have been spoofing bids left and right…
Oh yeah. But in this case I was confident in my ability to read Level II, and it was so liquid I knew I could get in and out effortlessly with whatever size I wanted.
How many shares were you trading?
I shorted about 27K shares, about a $150K position in the $5’s, I suppose. The long at the bottom was about 80K shares, so it was probably a $150K to $200K position. I didn’t use margin.
But you committed nearly half of your account…
Oh yeah, I was in a good portion for sure. It was just one of those times where there was enough liquidity. It all worked.
What’s your biggest loss?
LAKE. During the Ebola craze. I think they sold hazmat suits or something. See, that was the problem: I actually learned something about the company, which biased me even more (laughs). The stock had ran from like $7 to $10, and I was looking for some dumb little scalp short on it, nothing too major. I shorted it at $9.90 and was soon up $3I< when a press release hit the wire, another U.S. Ebola patient or something, and the stock ripped right back up. I didn’t want to take it off for breakeven since I was just up $3K on it, but the next thing you know I’m saying I don’t want to take it off for a $10K loss either since I was just breakeven on it (laughs). Part of the problem was that
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I had put myself in similar situations like 10 rimes in the previous four months. I would get stubborn in a trade going against me, add short into the next spike and then cover into the ensuing fade. 1 got away with it even single time. In fact, one time I was down $100K and turned it into only a $5K loss. And all the other times were actually profitable trades. So I created this terrible habit of going for a ride. So I thought the same thing when LAKE went against me. The next day when it spiked to around $13, I doubled my position to 10K shares.
The plan is always not to get stubborn with any added shares. If it comes back to highs, you take them off. But I didn’t take any adds off for profit, and it broke to new highs again. Now I’m stubborn with 20K shares instead of just 10K with like an $11 average. An hour later the stock’s at $18 or something, and now I’m scared. I’m down $100K
and the day’s not even half over yet. I kept holding the 20K core position in my ETC account overnight because I didn’t want to realize that loss, but I didn’t let any additional adds go against me very much.
Not that I capitalized very well on the adds either, though. One morning I even had a great add of like 20K shares before it dropped $2.50, but I didn’t cover any. I actually took those adds off for a small loss near breakeven later. Eventually the stock paused and hung around the $20’s for a day and I knew buy-ins were coming soon.
With your ETC account you only have T+3 days…
Yeah, so I basically had to cut it. As it consolidated between $19 and $22, I was praying it would break down, but it never did. And of course I never covered any during the pulls to $19. When it started to breakout again above $22 I just cut it off.
All of it?
All of it. I figured it was setting up for another leg up
, which actually saved me a lot of money because I was out before it went parabolic into the $30’s. By the time all my sloppy trading was done it added up to a $290K loss. Just a great example of how one trade can really get away from you if you get stubborn.
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You couldn’t take breakeven because you had been up $3K…
Yeah, it’s funny because my plan is always to take a short off if it spikes further than I think, take it off into the very next pull. And I got that pull with LAKE, but I wouldn’t take it. It was just a complete failure in following my strategy. That’s why people say short selling is so risky, but it only is if you aren’t disciplined. I’ve had to try to break myself free of some serious discipline issues.
One of those cases where it works every time until it doesn’t…
Yeah, the real issue is that I shouldn’t let myself go for these rides. I wouldn’t even remember LAKE had I taken it off for a $10K loss. It would be just another trade that didn’t work. The best way to sum it up is what I've heard from other traders: It’s okay to be wrong, but it’s not okay to stay wrong. That’s when you open yourself up to disaster.
What percentage of the your account was the $290K loss?
It was about 25 percent of my trading capital, but it happened right after my best month ever. I basically gave back that month. I think I had about $1.2 million at that point and got knocked back to $900K+.
What did you learn from that loss?
Well it was the first time I really considered having an “oh shit”
number, but I still don’t because I don’t want to trade based on arbitrary numbers. Although I have gotten better at forcing myself to cut losses on big chart breaks. It’s been painful, but I’ve done it a few times since then. In fact, last month I sized in way too big on CANF at a poor average and had to cut my losses for $35K when it started to break out to new highs. I couldn’t turn it into another six figure loss.
Did you take a break after the LAKE loss?
Not right away because I wanted to be there when LAKE really cracked. The loss didn’t bother me as much as it probably should have
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because I was still keeping hope alive. I thought I could maybe make it back. The problem was I missed the re-short, and I remember that being incredibly discouraging. It went from $30’s to $20’s in a day when I didn’t have any good size. My chance at LAKE was over, but there were still all these other crazy low float stocks running, so I kept trading for a few days. I didn’t want to lose my green month streak, so I chased that a bit and was trading bizarrely. I was going bigger and being very emotional. I went for an $80K ride on APT before getting out okay, and then made $60K on VRS before losing $60K the next day on IBIO. That’s when I finally decided to take a vacation.
Did it help?
Yeah, time off is key. It keeps you from going into tilt and trying to make it back quickly. You come back refreshed and thinking straight.
Did you ever doubt your ability to continue trading?
Nothing extreme as that. I never really doubted myself because I knew the entire problem was discipline. It was all avoidable if I could just swallow my pride and take the small losses. So it was a wakeup call to reassess my method, but never anything I felt I couldn’t overcome.
What’s your biggest disappointment when it comes to trading?
I guess if I’m ever disappointed about something it’s missing opportunities. I try not to dwell on that too much because I don’t want to be a hindsight trader, but I do regret not taking better advantage of or going bigger in some of the Awesome Penny Stock promotions. I could have been going five times the size with the amount of liquidity they provided. I’m also disappointed when a loss is due not to a failure in strategy but a stubborn attitude or ego.
What’s your proudest moment thus far?
Digging out of the hole I created in my early days. I felt such pride in doing that. I battled through to become profitable and consistent.
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Was that the turning point in your career?
Well digging into that hole with the streak of loser on LBAS really taught me so much. I learned that I hated consolidation, that a five cent range was untradeable, and that I should be looking for volatility.
It also taught me to stop trying to trade so many different strategies and just focus on what I was already good at. I realized I needed to concentrate on one or two setups I liked best, and that’s where my success really all started.
Do you think trading can be learned?
I think it can. I do think there are certain personality characteristics that help, but you can develop those as well. I think it comes down to how much you’re whiling to work towards it, whether or not you go the extra step beyond just watching gum video lessons and actually spend extra time learning.
What are characteristics of a successful trader?
Keeping a cool head. If you have a losing trade or perform badly, you can’t turn around and make some hot-headed, dumb trade five minutes later. You also have to have the ability to learn from your mistakes, think independently, and trade your own ideas. You don’t need your hand held if you have confidence in your own setups. You also need patience. When there aren’t any good trades to take, you can’t be pushing buttons out of boredom.
What are you currently doing to make yourself a better trader?
I m trying to learn new setups like branching out into listed stocks and short selling. I’m trying to get better at cutting losses on these low float runners that go further than you think. I’m also trying to learn the long side on these low floats better, because not only can I make some money long on them, but it should improve my short game as well.
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What do you think other traders do better than you?
Definitely understanding filings and/or news and deciphering it. I have very much limited myself to only trading charts and their patterns, but I think learning the fundamental side of the equation can help set expectations and targets, producing better exits as a result.
What do you do well?
I adapt to price action and what the chart is telling me. I can long a stock for an hour and then immediately flip to the short side. I see both sides of it.
You never marry one side of the trade…
I do when I get stubborn, but in general I don’t.
What are the trading rules you live by?
I like the quote, “Trade the ticker, not the company.” I’m basically trading patterns more than I’m trading stocks. Also cut your losses quickly, even though I still struggle with that one. And make sure to pay yourself along the way. Take profits. Go for singles, not home runs. I knew a trader who would swing for the fences on every trade.
He would never pay himself and end up watching these nice gains turn into losers. Once he finally realized his flaw and made the change, it was a night and day difference. He became consistently profitable.
How do you judge success when it comes to trading?
My fiancée says she can’t tell if I’ve had a profitable day or a losing day. That’s because even if I’m green on the day, I might be upset about how I traded a certain setup. That’s how I judge success in trading. How well did you execute your plan? If shorting a parabolic into an area of resistance works nine out of 10 times, I’m not going to be pissed when I have to take a loss the tenth time. I’ll be pissed if I go for the ride.
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What is the public’s biggest misconception about trading?
A lot of people think it’s gambling, but that’s a huge misconception.
I’ve done gambling, and I’ve done trading. There is just so much luck involved with gambling, whereas there are repeatable patterns in trading. There might be slight variations, but you can make the same trades on them and be consistent. In fact there s quite a group of us that prove you can. We didn’t get lucky on some huge trade one time, our profits come from thousands
and thousands of trades.
What one thing would you change about the market?
I think high frequency trading is pretty unfair. I won’t claim to understand it completely, but from what I know of it, it sounds like a really unfair advantage. In fact I just read something about HFT firms getting early access to filings. It’s absolutely ridiculous.
What’s the most important advice you can give to new traders?
Start small. Don’t push size early, even if you think you’re ready. You have to give yourself plenty of time to get over the learning curve.
Don’t expect to make consistent profits your first few months. People walk in all the time with expectations of becoming instantly rich, but that’s just not how it works. You have to trade small and give yourself a chance to succeed. I would also tell new traders that paper trading is worthless. It might help you get the mechanics of trading down, but the emotions of being in a real trade, with real money on the line, changes everything. It took me a long time to understand that.
Any advice for how to handle those emotions?
You have to keep them in check. One of the biggest difference makers for me early on was hiding my unrealized profits and losses. I simply hid that column on my broker’s platform. I still had an idea of what I was up or down while in a trade, but I didn’t have that number staring me in the face. That helped stop me from prematurely cutting trades due to being nervous about how much I was up or down.
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It helped you make trade decisions based on the chart instead of some arbitrary number…
Yeah, I liked it a lot. It made a huge difference. Other than that, it just took time to get over the fear and adrenaline. Just making the same trades over and over again until I was comfortable. So again, patience.
Anything else?
I think an important thing for beginning traders to look at is how long can you trade without making money? How are you going to pay the bills while you’re learning how to trade and not profitable yet? Because part of what made me successful was the fact that I was living at home with my parents still, so I didn’t have any major expenses. That gave me time to get my feet under me and get over the hump. It would have been an entirely different story if I was trying to trade with a $4K