by Brady Dahl
When you find something you’d like to short, how do you enter?
Do you scale in?
My entries are usually pretty sloppy. If it’s something I’m going to build a bigger position in, I’m usually early. Although I have gotten better over the last couple years learning from good traders in the chat room. But yeah, I scale in.
On the way up or on the way down?
On the way up. And I try to create liquidity and put orders on the offer, but if it s something I need to get in quickly, like a scalp, I’ll kit the bid. It just depends on the trade and situation.
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What percentage is your starter size?
I never really know what I want my full position to be when I first start, so there’s no set percentage to my starter. I think it depends on price action and movement. My positions often end up being much bigger I thought they would. And that’s usually because they go against me more than I thought they would. But I’m not fighting a losing battle, because through my research I know the momentum is going to come to an end. If I know a stock is overvalued at $5…
It’s even more overvalued at $7…
Exactly. Most guys will be panicking or blowing up at $6, but I don’t really mind it. I’m just going to scale in and add to my position because I know fundamentally I’m right. The air will eventually come out of it.
Is it fair to say you are a trader who will pretty much add until you’re right?
Yeah. To me, it creates more of an opportunity. My biggest gains have started out as my biggest unrealized losses. I end up building a bigger position when I’m down, but my conviction is still strong. I know the company has no money, or they have convertible debt that’s being converted to shares and dumped on the market. Whatever it is. Also I never use stop losses. I don’t even know how to enter one, which is hard to believe but true. Actually, when I first met Nate he mentioned being squeezed in a short position. I told him you can’t squeeze me.
I’ve never been squeezed, (laughs) Because if my conviction is strong, I have the money to sustain the unrealized loss.
When other traders might be questioning their conviction, you’re adding. Is your conviction ever wrong?
Not really. I’m sure there have been times where through additional research I started to think differently, but it’s not just because the price moves against me. My conviction could change if I learned new
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information, but it’s very rare. That doesn’t mean I won’t take a loss but it’s rarely due to a change in conviction. More than likely my timing was just wrong, or sometimes the borrow fee is too high and it’s going to take longer to play out than I originally thought.
So what’s your favorite play?
A parabolic move caused by a bullshit press release or news that I deem worthless. Stock with a big float, low on cash, and up on momentum. Preferably Day 3 of the run—although I’m usually early.
It’s also a small cap, something worth $500 to $600 million that has run from $2 to $6 in a couple days. Ideally there’s at least 20 million shares in die float and fundamentally the company is crap. It's even better if they have a filing already effective and cleared through the SEC to issue more shares.
Is that also your most profitable set up?
Yeah, I probably make the most money in those types of setups.
Are you about 99 percent short biased?
Yeah, I do go long sometimes, but I'm naturally better at shorting. I'd say I’m right about 80 percent of the time when short but only 55
percent of the time when long. I don’t have stats for that, but I’m guessing. On the long side, I’m nervous to hold for an extended period of time and it’s rare to build a big position. It’s the exact opposite on the short side.
How many trades do you typically realize intraday?
Not many usually, because I try to focus on one to three trades that have the most potential for the most profit. Plus, I can’t track too many things at once, and I’m slow to get my orders in. But I’d gladly take 50 cents on 200K shares intraday if it happened. But sometimes you have to wait a few days.
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So be patient…
Yeah, but other traders have more patience than me. Even if I think a trade is going to continue going in my favor, once I start taking profits I can’t stop myself from taking more. My initial thought is to cover 10
percent or 25 percent of the position, but then I keep covering. Or if I’m up really nice on a trade in less than an hour, I’m happy just taking the cream oft and not waiting for the entire trade to play out.
Do you ever add to a winner on the way down?
I should, but it's a weakness. I do the opposite and scale in as it goes against me because like I said, if I like it at $5,1 love it at $7.
Do you try to keep your average within a certain percentage of the price?
I constantly reassess as it goes against me, but at some point I’m just waiting to see a blow-off move. I recognize that and then try to pile in short. So I will back off, wait, and let it run when I realize a stock still has more legs.
But you’re not covering. You’re just waiting to add..
Right. I’m not covering. Just waiting for the right time.
And you’re not afraid to double up or more I suppose…
Exactly. But you don’t want to add too much too early. You’ll end up with a horrible average. But when I see what I think is the right time, I’ll add a lot more and my average will get up there.
How big are your positions generally?
It varies. On a scalp, it’s going to be a small position, 2500 shares to 10K shares. But if it’s something I have strong conviction in and it has gone against me, I’ll short $5 million worth. It’s all situational.
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How much cash do you need in order to trade at your level?
Back in the day I’d keep $30 million in accounts, but now it’s more like $10 million. I’m not afraid to put entire accounts into one position. I don’t mind being all in.
I want to have that much conviction one day…
Trust me, there are times where you start to second-guess yourself even though you know. But your mind starts to play tricks on you when you’re down a million bucks. But you still know in your gut.
Do you set a target for your trades?
Usually when I get into a trade, I have an idea of where it could go, but the target will change based on price action.
You might cover into a flush even though it’s not at your target?
Yeah, I anticipate flushes. I put hidden cover orders in below the market every five or 10 cents just in case it flushes. And I scale out 10K or 20K at a time, something like that. That’s what’s difficult about putting on size like I do. It’s always hard to get out. It’s a process to cover 200K shares. My buddy might be out with $5K in profits already while I’ve only covered a quarter of my position. And sometimes it reverses and goes against me before I can cover everything. That’s why I like to trade stocks with bigger floats and more liquidity.
What are you doing during a trade, especially since you’re not really looking at charts?
Well, I still watch every tick while I’m sitting here.
But you are able to look away and do other things?
Yeah. Actually, if I’m getting buried in something and I’m getting stressed out, I’ll go take a nap.
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Falling asleep is the last thing most guys can do in that situation.
It’s stress relief for me. I can walk away from an ugly position and not watch. And it seems to be good luck for me. W hen I wake up, things have often turned for the better.
Same advice for letting your winners run? Take a nap?
(laughs) Yeah, that can be a tactic at times—to stop myself from covering. But it depends on the current price action and how far I think it can go. Although letting my winners run isn’t exactly a
strong suit of mine. Once I start covering it’s hard to stop, even when I know there’s more in it.
Do you have a set amount of profit you’d like to make each day?
I try to average $15K to S20K profit per day. But I don’t stop trading for the day if I reach those numbers—it’s just something in the back of my mind. I just know $15K to $20K per day usually amounts to a $3 to $4 million year.
Do you have a maximum loss per day that you’ll stick to? I’m guessing no…
No.
Then how do you manage risk? You don’t use stops and you add to positions as they go against you…
I have no set rules for it, but I do manage risk.
I don’t want new traders thinking you’ll just add to the moon…
No, that’s not the case. I’m always reassessing my position, the stock, the news, and my analysis of it all.
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So the way you manage risk is to understand the fundamentals and do your research…
For sure. And with constant reassessment you can change your mind when needed. Like with that biotech at the end of last year. . I knew it was crap and would come down, but I had originally overlooked how I small the float was, so I ended up taking it off for a loss. It could have still gone from $20 to $30 in a heartbeat because the float was so small. Plus I didn’t have a good, solid borrow on it to hold for three weeks if necessary, so I took it off. The risk management there is me re-evaluating the trade and making a decision.
Does the behavior of the overall market play into your decisions?
There are many days I don’t know if the market was up or down. I do keep the SPY chart up, but I quickly forget what’s going on, especially after the market closes. To me, it’s really not that big of a factor in my trading, unless the market is going cra2y one direction or the other.
Then it has more of an effect. Although I will say this, bull markets are way better for shorts like me than bear markets. I trade mostly small cap stuff and look for parabolic moves, so I like when things are getting bought up heavily like they are now in a bull market. On the other hand, I’ll make money on the initial flush of a bear market, for a day or week or however long it lasts, but then all these high-flying junk stocks just die. They become dead money and don’t move, so there are less opportunities.
So how do you survive a bear market?
You always adjust. You might make less money and trade less, but there are still trades.
Do you think you go long more during a bear market?
Yeah, probably. You’re looking for bounces or for the market to bottom and go long.
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How does social media play into your trading?
I won’t trade something just because someone else is trading it, but their post might open my eyes to it. I’ll take a look at the stock, pull up the chart, check the fundamentals, and then decide for myself whether or not to trade it. But that is how I get some of my ideas, since I don’t use scanners or things like that. But you need to know who are the good traders and who aren’t.
Is that how you use the chat room as well?
Yeah, and I give more weight to certain traders in there, too. But you can’t just blindly follow. Take a look at it and see if you see what they’re seeing.
What’s your biggest win?
I had two wins that were pretty close to each other. One was ECNC, a local Vegas company that was a total fraud. The stock was up from SO.50 to $5 or $6 per share when I started watching it, but I didn’t short it yet. I didn’t even mention it to my partner at the time, Nick, because I knew he would want to start hitting it, but it was a monster.
They were pushing technology where you could swipe a credit card using a device for your computer or something, and the stock just kept climbing, even with like 200 million shares in the float. Anyway, we started shorting at $12 or $13 before it went to $20. We had a shitload of shares with an average around $17 before it started coming down.
It sunk to $13 or so before it got halted. The company had nothing going on, no money, and two or three weeks later it re-opened for trading at $0.50 again. Nick and I each made three or four million dollars.
What was that experience like? Did you guys go crazy?
a pretty unemotional guy so it was sort of just another day at work, (laughs) Don’t get me wrong, I was excited, but you wouldn’t know it.
What was crazier is that we actually had one of the brokers try to break
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the trade. Because we were short, they wanted delivery of the stock, but it was halted, so we couldn’t deliver. Long story short, we got an attorney involved and they couldn’t break the trade, but I remember arguing with their back office while I was on vacation in Miami. They were just trying to get part of our profits.
How big of an account were you trading at that point?
It was on the way up. For about three years I averaged about $1
million per month in profits, including syndicate, this big gain, and the second big gain I mentioned.
And what was that big gain?
A buddy of mine owned a brokerage firm and used to give me a bunch of IPO deals. I would always buy shares but none of the deals ever worked out. I always lost money, so I was ready to quit doing business with him when he got 90K shares allocated to me of another IPO.
This one wasn’t drumming up much interest either but suddenly got very hot at the last minute. It priced at $8 or $10 and went up to $50
or $60. I scaled out within 20 minutes for another three to four million bucks. So those two trades helped my bankroll on the way up.
On the flip side, what’s your biggest loss?
I don’t know exactly. I did lose around $3 million shorting Krispy Kreme Doughnuts back in the day. The float was a decent size, but it was locked up institutionally so the real float was a lot smaller than I thought. I stayed short for three months before taking the loss because it just wasn’t breaking down. Of course all the reasons I was short ended up being 100 percent right a year later when it went from $30 to $3 or something, but my timing and institutional shares were the issue.
Was that a huge blow to your account at that time?
Nah, that s when I had a lot of money in the account. It was probably 10 percent.
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Was that the final straw when it came to shorting legitimate companies?
Yeah, it was the same mistake that came back to haunt me again.
Although I still do short them once in awhile, but not with any size.
Was that as close as it comes for you to a blow up?
The only year I ever lost money was in 2008. I was having a decent year until three-quarters of the way through. I was just about to cash in on a bunch of positions—I was short the market and short a few banks—when the Fed stepped in and totally changed everything. They made it illegal to short certain financials. Then some brokers even added more names to the list, and they all went up. I got bought in.
Then the market continued to go straight up for like the next two months while I fought it a little bit. I think I ended up down a couple hundred grand that year as a result.
As far as month to month, are you consistently profitable?
Pretty much. Every once in awhile I take a big loss, so I’m sure there are red months, but usually the big losses follow a good run. It seems like every hot streak ends with a big loss. Usually it begins to feel like I’m due for a big loss.
How do you handle losing streaks or drawdowns?
It happens. You go on bad streaks. They come every year, where all of a sudden you lose six straight trades and two of them are big losses, but I just know through experience that it’s part of the business. You have to deal with it and move on. Does it play with your head sometimes? Do you start to second-guess yourself? Yeah, of course.
But reality is, I’ve been through it before and I’ll get through it again.
This is what I do. May
be I’ll just try to slow down a little bit, size down and regroup, but I’ll push through.
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Have you ever thought about giving up on trading? You invested in restaurants at one point…
Yeah, that was because the market wasn’t offering many opportunities and the IPOs had sort of died. I just wanted another type of income, just in case, but I never gave up on trading. I sit here and it comes naturally. I enjoy it. So unless it becomes too difficult to short again or the market changes in some unforeseen way, I’ll be trading.
What would you call a turning point in your trading career?
One turning point early on was the Amazon trade I nearly blew up on, because I learned so much from it. I learned not to fight big cap, legitimate stocks and not to risk more than I can afford. But another turning point happened even earlier, when I was still trading Nick’s money. We had a rule that we could only trade 2500 shares maximum.
But as the market started to go nuts and stocks started to really move during the Internet bubble, I told Nick that it was a once-in-a-lifetime opportunity and that we had better take full advantage of it. We started taking bigger positions and to this day Nick says it’s the best thing I ever told him.
What’s your proudest moment in trading?
Just making it as a trader. Especially coming out of the Internet bubble days when so many people tried to make trading work. I had a lot of friends who also quit their broker jobs to day trade and not one of them made it. Being able to succeed and make a living at it makes me proud. Being able to pay my parents back in a month wasn’t too bad of a moment either.
Yeah, what did they say when you paid them back so quickly?
They were just shocked. But for years and years my mom was still worried about me. Because I wasn’t a successful broker, I think she carried that thought over to trading and was always telling me I should go back to school to get my masters, (laughs)
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Do you think trading is an innate skill or can it be learned?
That’s a tough one. I think you can learn aspects of it over time, like rules and guidelines, etc, but at some point instinct plays a part. And personality. I have a friend who started trading because I was trading. I would give him trades once in awhile and sort of walk him through it because he knew nothing about the market. Even his lingo wasn’t that good. He would say he covered something when he was just going long and stuff like that, (laughs) But the point is, I think he has the right personality for it and initially he was making decent money just following me. But it seems like he learned over time from being in the chat room and now trading comes more naturally to him. Through watching what we do and gaining experience, he’s been doing it for about three years now' and made like $800K last year. So I think there was something innate there, but he definitely also learned.