As some might have seen from this past week I made a newbie mistake on DCTH on Tuesday. I made up for the loss and actually ended with a higher $ win than my overall loss. I promised myself not to revenge trade on it because I made a huge, preventable mistake on it the first time I traded it. But, the loss came with a lesson and that same mistake won't happen again. I ended up o/n that same day and made up over 50% of my loss with my o/n position. I sold it into a morning gap up the next day but had issues getting executed because it moved fast. What did that teach me? DON'T USE MARKET ORDERS! I panicked and tried moving faster than the stock rather than putting in a limit sell and getting executed at the price I wanted. Still ended up with a .6 cent a share win o/n. I took some good advice from some of the traders that commented on my last blog post and the advice/encouragement was priceless. Looking back at my o/n win I found myself telling myself that I wish I went bigger on my position but I cut that thought out right away. Regardless of my position size, my win was a 37 percent win. So with that win I started looking for the reasons why I was comfortable buying and holding o/n.
First, I am under PDT so learning high probability o/n patterns is going to be key when I don't have day trades or when I don't want to waste my day trades. I also don't want to over trade so I need to learn the difference between good and bad o/n patterns. The key to my success with this o/n play was simply watching Tim's video of why he held WKHS o/n and over the weekend. Same exact pattern as WKHS. It wasn't finishing the day on the 21st with it's highs but it did find support at the end of the day on it's b/o price in the morning spike that day. It had shown it could gap up in the morning on the previous day so I felt that it could at least retest the day high in either premarket or at market open. It did just that and I was happy that I caught that pattern. It was a 37 percent win, and I shoulda coulda woulda bought more shares and had an even bigger win. That's the key to learning these patterns/strategies. You do not have to go big on every trade and actually with a small account, taking small positions will help you feel more comfortable with your trade and will help you understand why you made the decision you made. On my first stab at DCTH I missed my limit order by 1 second and if I was just a bit faster I would have made profit. My mistake? I couldn't figure out how to cancel my limit order and as fast as it went up, it came down just as fast and I got executed on the way down. My second mistake on it? I actually felt like I made a good decision at first, I was going to buy 2k shares but I sized myself down to 650 shares. Regardless I panicked on the way down even though my loss wasn't that big but I stuck to my rules and I cut my loss quickly even though this time if I held it would have worked out for me. That's not important and all that would do is teach me bad habits.
So after these two trades and a 50/50 win loss ratio on it I decided to day trade it after my o/n morning gap up win. I knew that .35 was a b/o level and with the amount of volume on it if it could break it, it could grow legs. Since I didn't get executed right at market open I actually missed the morning panic dip buy so I told myself I can only buy b/o. I missed the .31 cent resistance b/o so I stayed patient and watched to see if it could break above .35. As soon as it was able to break it I bought. Thanks to a trader that commented on my last blog post I got some information that was key to my success with this trade. I was advised to buy small on a b/o or a possible top and let the b/o confirm itself to me. I took a 100 share position at .35 and I watched it fall. I added on the first fall since I was comfortable with the loss as it dropped down to the former resistance at .31. Took another 100 share position. It went up for a little bit then I watched it start dipping again and it dipped down to .29 but I was still comfortable with my position size and I added 200 at .29. Normally, I would have panicked right here and took my loss but the other thing that I was advised to do is watch how the stock reacts to dips as traders who love dip buying will buy on the dips and start driving the price back up. I was also watching Stocktwits and even though I don't take anything serious on there I was watching so many people say "added 10,000 shares on that dip, lets go bulls!" lol. Absolutely beautiful chart after that dip to .29. It started forming higher lows which helped me feel more comfortable buying those dips. I bought two of the dips, 100 shares added on each dip. I ended up with a total of 500 shares which was still smaller than my first trade. I averaged out to .3249 and I decided I was playing with fire and put a limit sell in at .346 and I nailed it. What was making me feel comfortable with this trade? Volume was picking up, and higher lows. What was my indication to sell? It looked like it could double top at the end of it's last run. It was picking up nicely after a couple of the higher low dips, figured it might retest it's high so I put a limit sell in for the price I was okay selling at and I was executed a few minutes later at the exact top of it's last run! Nailing the top made me feel awesome, but I know that was pure luck and speculation. I thought it was going to go at least .1 higher than that but I played it safe and took a price I was okay selling at. Just on a side note, if you haven't read How to Make Money in Stocks by William O'neil, you really should pick it up. It is more about long term investments, but if you take a look at the chart on DCTH on Wednesday and where I was buying it, you will notice it's a cup pattern just missing the handle. Since I am trading a different type of stock than what he teaches I wouldn't buy where he recommends buying on these patterns. But, if you can spot these patterns, you can take the way he reads charts and make them applicable to day trading penny stocks.
If it hadn't been for the advice I was given I probably would have failed again on this stock. Like Tim says, if you win and learn something on a stock that's best case scenario. I like to evaluate each trade win or loss. I learned how to size in properly and respect my risk regardless of how I feel about a stock. I got close to my risk a couple times with this trade but never hit it and I didn't panic out on it. I felt in control of my trade and I was respecting the price action. The other thing I learned was regardless of how I made this trade I was kind of going against my normal rules and was adding into my position but I did it in a way where I felt it was an educated decision and I wasn't adding on a falling knife, it was tiny bits of weakness at a time. I would never add on my position if this thing started crashing the way it was on Friday. I also had no plan to trade it on Friday although that last hour dip buy was amazing. I wasn't able to be around for market close so I wouldn't have been able to act on it anyways. Where does all of this bring me? First red day is a real thing and I hope all of us believe in it! First red day on this stock was technically Wednesday even though that's the highest the stock price has been the past week. There's a quote that says "The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes." -Jesse Livermore
What started happening after that big run up on Wednesday? Nothing but weakness. From .36 down to a low of .11! I think that regardless of how much it ran up that day, people saw a red candle and started panic selling, for good reason albeit. I think that quote is the truest thing about the stock market. Could DCTH continue it's run on Wednesday? It doesn't matter if it could have, first red day caused the stock to crash no matter how much volume was going through it. I think the stock crashed more from human emotions more than anything else and it doesn't matter if the "stock has to be over $1 by August! Hold on for the ride!" Do not let these thoughts get to you. Sell into strength, profits are profits and right now it looks to be more likely at .5 again than $1.00 in a month. Look at Roland's ITKG trade, he left about 5 grand on the table and it doesn't matter that he did! He sold into strength and came out with a profit that most of us would be ecstatic about making. Hope isn't a strategy, keep that dear to your heart in life and trading. This is all a battle of human emotion, strategies, and patterns. I could be completely wrong about the stock starting to crash just because of that red candle on Wednesday. It was very overextended and I had no plans to hold it at all that day. Best case scenario when I took my position was it breaking out over .35 and possibly hitting the resistance at .40-.41. It couldn't break out so I took advantage of the dip buys and got out for a small profit. If I got stubborn there and hoped for a breakout above .35, I would have lost. I have now lost on 2 stocks, won on 3, and cut even on 1 stock. I have cut losses quickly so far and plan to do so my entire career. I have learned a lot of valuable lessons from all of this and all that I see is an upwards trend from here as long as I stay disciplined and only trade the best set ups.
Again, I am a newbie so take everything I say with a grain of salt. Do not learn from me, I am in no way even close to being able to teach anyone how to trade stock. I use these blog posts to remind myself of how I was thinking during my trades and to evaluate myself later on in my career. Good luck next week, study this weekend! Feel free to comment, I love talking with other traders!