Trading $3000 to $2.1 Million Using This Specific Short Selling Strategy

Was this the strategy that you were able to take 3k to over a.

Million dollars with that strategy alone? I was not trading anything else. Yeah. It was just so effective because this.

Guy took $3,000 to over $2.1 million.

You have to look at the profit factor. I think that's more important than you know, win percentage or risk reward. If your profit factor is over 1.5 and that's an elite strategy after 10am or 11am if a pattern is failing then I'm looking to downsize my risk on the short side. So this has been the biggest change that I've made this year that I'm.

Not as Chris Burma, a systematic trader who is on the top 20 of a verified trading leaderboard. In today's episode on Chart Fanatics he goes through his A plus setup that is simple and repeatable.

I've learned to take profits in these zones just to downsize my risk, take some money off the table and then look to re hit. And by doing this I was able to make a lot more money. At the end of the day I think I made you know, 10, 15,000 on this trade. So it was a good trade and I wasn't even in that much size.

Chris explains how he uses a systematic approach with an element of discretion that has allowed him to continue to scale his account.

If you want to take a systematic approach, that's great. I highly recommend that especially for new traders. If you're a systematic trader you can realistically become profitable from day one with little to no experience just by following a strict criteria. The market cap is probably the most important thing for me. I don't want to trade anything over like 200 million market cap because it just kind of. This has been the biggest change that I've made this year is that I'm not as stubborn on the short side because in years past I would probably just keep adding, adding, adding and holding as the stock is ripping and then you're losing more and more. So that kind of revenge trading is what causes these massive blow up losses. And that's the biggest threat to a short seller.

Welcome everyone back to Chart Fanatics the go to channel for all of your very best strategy and concept breakdowns with.

The very best traders in the world.

World talking which today we're back in Dubai for this incredible episode and today's guest is a verified seven figure trader. He's actually a top 20 trader on the verification platform Kinfo and I'm very excited for this. He trades small cap stocks and today we're going to go through a very specific strategy when it comes to shorting.

Gappers in the short cap market. It's the one and only. Chris Firma.

Thanks for having me, Riz.

My absolute pleasure. Thank you for being here.

And no worries.

You know, I'm super excited about this and I really do appreciate you going over a strategy because I know that especially in the small cap world, but just in general. Yeah, you want to protect edge.

Yeah, 100%. So I was a little hesitant coming on this podcast, but I do think it's good to give back and, and kind of explain our strategy just to, you know, show people what we're doing and give them an inside look so maybe they can adopt the same approach.

I love that. And then again, thank you for being there. Where, where should we begin though? Where's the best place to begin, do you think?

Well, I think anyone trying to short small cap, they're going to start with your basic gap up short. So anything that's gapping up in Pre market, say 100%, that would probably fade after the open. So that statistically when we back test these patterns, that's likely what's going to happen. But recently, in the last year and a half or so, the patterns have changed quite a bit. So we'll describe on the whiteboard what we've done personally to kind of adapt to those market changes and some of the patterns like in 2023 versus now, how they've changed and just so you can retain edge over time. So let's take a look at a graph here. So let's say this is the pre market chart. Okay. So this is the market open right here. And this is pre market. Yeah. So let's say, you know, it's, it's.

Got a news pump.

A lot of these small cap stocks, they like to pump their stock with basically a pr, some type of hype. So it just starts running on low volume. And there's a reason they do this in pre market is because it requires less volume to pump the stock. So for rigors, it requires less money for them to create this move. So that's why they pump it up in pre market. And so, you know, it probably runs up. Let's say this is 100%. Pull back a little bit. But a lot of these will hold up in pre market because their intention is not to sell off during the pre market session when the volume is low. Right. They're waiting for the market open so they can get the most liquidity out of the market and unload Their shares.

Yeah.

Because you have to understand that these are still fundamentally poor companies. They're ultimately going to dilute. So whenever they're extended, there's a good chance that it's going to come down. And that's what we've seen in our backtests. So. Right. Yeah. Right here you have the market open and in years past, a lot of the times they would spike up a little bit. Yeah. And then start crashing down. Right. This is your typical pattern. And so let's say this is, this is the open price right here. And let's say this is a, you know, 15% drop from the open. Yeah. So that can be, you know, your average expected return on some of these patterns without a lot of risk. Right. You probably would have a 20% average spike percentage at most.

Yeah.

But the majority of the time they're going to come fading down. And then let's say this is like 10am Right. So 30 minutes after the market has opened, the best fading gappers are going to be the ones below the open at that point.

Okay.

Right. So at, by 10am that's usually my kind of time frame where I try to check in on what the stock is doing. And if it's holding above the open at 10am Then I'm looking to downsize or to cut the position. Right. Because it's a red flag that it's not behaving properly. But if it is fading, you know, 15% or more by 10am Then that's a good sign that it's going to continue fading. And also you want to see the volume profile. Right. Let's say this is the volume right here, volume bars. Right. You want to see the volume decreasing. Okay. Because that kind of indicates less interest in the stock, less kind of manipulation. Whenever there's high volume, it kind of favors more manipulation and more buying interest. So this would be an ideal pattern. By 10am it's below the open. By 15%, the volume is decreasing. If I'm still in this position, I haven't taken any profits. I would consider holding for an adf, as they call it, which is an all day fade. So this pattern, the all day fade, has kind of become less common now in this market because there's just so many reclaims, there's so many squeezers from the open. And I think that the short side has become a lot more crowded. Right. There's so many niche brokers that are kind of specializing in this space and people know that there is a mechanical edge shorting yappers or any kind of extended penny stock that more people are becoming attracted to the short side. And the result of that is that when the patterns don't work, the the squeezes can become explosive. Yeah. Right. So if, let's say at 10am it starts reclaiming, you can have these moves that start shooting above the open, above the pre market highs. Because a lot of people are using this pre market high as their stop.

Yeah.

Because if something is breaking above the pre market high, you can kind of assume that the pattern has failed.

Yeah.

It's no longer an ADF pattern. There's no chance. Right. Especially after 10am so after 10am or 11am if a pattern is failing then I'm looking to downsize my risk on the short side, limit my exposure and even flipping long. So this has been the biggest change that I've made this year is that I'm not as stubborn on the short side because in years past I would probably just keep adding, adding, adding and holding as the stock is ripping and then you're losing more and more. So that kind of revenge trading is what causes these massive blow up losses. And that's the biggest threat to a short seller is the blow up. Right. We fear it, but we have to manage our risk every day. So this is the main thing that I do now is that I cut things after 10am if they're not behaving properly showing that ADF pattern. So why don't we show another one here?

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Let's get into this episode. In these scenarios, like as you said, most people would use the pre market high as a stop loss, right? Would you be using in that scenario as a stop loss?

So if you want to take a purely systematic approach, I found that using the pre market high is not a good stop because a lot of the times they'll look to clear the highs, creating a liquidity, eventually stopping people out and then the stock proceeds to dump immediately. So you're basically. If your stop is at the pre market high, let me show an example here. So let's say this is the pre market high. It fades off before the open and it's still, you know, up 75%. It's still a 75% gapper at the open. So that would probably meet most people's criteria for a short. So they would short the open right here. And let's say it starts fading a little bit and they're thinking, okay, we're in the green, we're looking good. But then, oh, it starts reclaiming. Now what do you do? Right. It's 10am it's reclaimed the open and it's approaching the pre market highs. And if your stop is right here at the pre market high, a lot of the times the patterns will look like this. It'll clear the pre market highs just briefly and then immediately come crashing back down. Because the riggers want to extract the most amount of liquidity they can out of the market. And they're not going to do that if they just fade it down all day. They need to get some kind of panic out of the short sellers because these are short crowded stocks, we all know it. And the only way to get that liquidity and to force the covers is to break the pre market highs. But if you want to take a purely systematic approach, you'll find that in the back tests using the pre market high is not the best stop. Right. Because it's not a fixed percentage point.

Right.

It could be different based on the setup. So what I use now is a fixed percentage stop. Let's say, you know, why stop? 75 to 150% from the entry, which sounds a bit crazy, but that's what the back test show, yields the most returns. So let's say my stop is way up here at 200%. I would be surviving this pre market high clear out. Yeah, right. And let's say that eventually it fades back down.

Sure.

I was down, you know, 20% at one point when it cleared the highs, but I still gained, you know, 30% by end of day. Because the ideal covers are going to be the longest time frame.

Yeah.

Right. Because these stocks, they naturally, if you look at the daily chart, the overall trend of these small caps is like this. And this is the market open of the, of the spike day. Right. So let's say this is like a period of months or years. They're always on a steady downtrend because they're, they're bad companies. Right. They're selling off. So a lot of the times the reasons that these sell off from a spike is because you have long term bag holders in the stock looking to get out.

Yep.

And they can't sell on these days because there's no volume, there's no liquidity. So they are looking for a spike even to sell at a smaller loss. It's easier to live with. Yeah. Right. So you have that kind of selling pressure. You also have dilutive selling pressure. Right. The company is going to issue warrants.

Yeah.

You know, they're going to do direct offerings, ATMs, things like that. So they're always looking to dilute, but they want to sell at the highest price possible.

Oh, close.

So why just sell on a typical spike when you can trap short sellers and sell into the spike of them covering? Yeah. Right. Because it forces buying. So this is why we use the wise stock. Because it shows that yes, we will have some outlier losses, some big losses which are harder to stomach, but over the long term it yields the highest return because we are surviving a lot of these manipulations, a lot of these games where they're trying to get short sellers to cover. Yeah. And if your wide stop is way up here, it's, you know, all of these gains and things can occur below your stop and you're unaffected. Right. You're still looking for that end of day target where eventually they're going to sell.

Well, just to clarify for the audience as well, systematic trading, you're actually our first trader who is using utilized systematic approach. I know you use discretion as well. But just for the audience who don't owe an obey or don't understand systematic trading, what does that boil down to? Being able to make that decision on say this stop loss.

Right.

It's because you, as you said, back tested and collected real hard data.

Right.

Of what would be, you know, most edge, most probabilistic within the market to create a probable and profitable outcome for you.

Right, exactly. So the reason that we gravitate towards systematic trading is because we can prove that something has an edge through the back testing versus discretionary trading, where you're relying on price action, kind of intuition, you know, tape reading, level 2 analysis, other things that are hard to quantify. And those things, you need a lot of experience to be a good discretionary trader. Whereas if you're a systematic trader, you can realistically become profitable from day one with little to no experience just by following a strict, you know, criteria of entry and exit rules. So the most basic systematic short setup is the gap or short. So you short the open, you cover the close with a very wide stop. And this allows you to kind of weather the storm of all the manipulation and all of the gains that are occurring during the day. And it just kind of quiets the noise because you're still going to be covering at the end of the day, you know, 90% of the time. Yeah, right. If you have a wide stop, the probability of it being hit is very low. Yeah. So your win rate is high, but your risk to reward is a little skewed. Right. Some people don't like the risk to reward with these wide stuff because your losses are going to be a lot bigger than your wins. But you have to look at the profit factor. I think that's more important than, you know, win percentage or risk reward. If your profit factor is over 1.5, then that's an elite strategy and that's what we can produce with some of these systematic approaches. But the edge has been slightly reduced on the gapper short in recent years. So I personally don't use this strict. They call it the opening print setup. So I don't do this specifically anymore, but I use a variation of it and I use my intuition, discretion and things like the 10am rule. I think this is a very important rule for a lot of short sellers to incorporate in their plan. If the stock is above the open price after 10am to me that's a red flag. And what we can do is say, okay, let's try and collect data on this. What happens on all of these stocks that are above the open at 10am and we can see that the expectancy is negative, so the edge is almost negated once a stock has kind of shown behavior that it's not an adf, an all day fade. So that's why I'm looking at a trade throughout the day. Every 30 minutes I'll try to reassess the trade and see how it's behaving you know, how do I feel about the price action, how's the volume, Any kind of blatant manipulation? Have the market market conditions changed? You know, I look at other gappers too. If everything else is flying, then there's a good chance that this is going to find some sympathy as well because longs are going to be more aggressive. So you have to really take the context of the market condition for that specific day into, into effect as well. Because right now the cycles of a market can change from day to day.

Yeah.

You know, one day can be extra strong, one day can be extra weak. So you have to gauge the sentiment every step of the way. Every 30 minutes I try to just check a pulse of the market and see what's happening.

Yeah.

So that's allowed me to kind of avoid some big losses. Right. Just being anticipating what's going to happen, you know, if other things are flying. Oh, maybe we should try to downsize our risk here. Not saying completely close the position, but maybe lower the stop, maybe take a few shares off, you know, if it's dropping, maybe take some profits into a wash and look to recycle. So this is something that I've kind of honed in on this year is the recycling. So right here is your market open and let's say. Actually let me draw this from the pre market.

Okay.

You've got a pre market runner and let's say it consolidates here for about an hour, goes up some more, consolidates a bit and then at the open it's still at 100%. Right. So this would fit the criteria of a gap of short. Yeah, you want to short something up 100% because statistically it's going to come down. Okay. So let's say we short the open, it squeezes on us a little bit but eventually fades and then it comes back down to this prior pre market support area. Right. So nowadays I would look to take profits here. Okay. Because it is at a prior support level and it's likely to bounce. So why not take, you know, half the position off right here and then look to recycle at this prior resistance area. Because once it cracks this level.

Yeah.

It support becomes resistance. So you can re short here, put that half that you took, put it back on and then look to catch a fade back down. Because a lot of these patterns are not just straight down. Right. So you have to anticipate the bounces, the moves and this way you can profit more off of a certain range. Yeah. Versus looking for one directional moves all the way down, which are not as common anymore, so you can actually make more money. And then if you notice that it's bouncing here again, then I'll change my approach and say, you know what, this is not an ADF anymore. It's more of a. It's range bound. Better to recycle this range so we can continue to buy off support, sell off resistance and just continue that pattern. And you can make multiples by recycling the shares. Yeah. Another factor is that you save on locate costs. Instead of having to locate a large amount, you can locate a smaller amount and just recycle those shares several times throughout the day. Okay. And your profitability, your metrics are improved because your fees are reduced. So a lot of these things play a role in the short cap in the small cap market Nowadays these patterns are not so simple. Right. They're very complicated, they're very crowded. So you should anticipate some kind of, you know, bounces, reclaims. And this way you can be more profitable on a certain range of movement.

When you mentioned the backtester, for example, you mentioned about the 10am if the market is still above the open. Yeah. Then is it less Probable?

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And let's get back to the episode when it comes to backtesting. Is that something you're doing manually or is that something you are able to input information and it will automate that data populated for you?

Yes. Without that we wouldn't be able to back test these for years. So when I first started the back testing it was a lot of manual. So I'd be tracking the patterns by, you know, trade ideas. I use. Yeah, and most people use trade ideas so it shows you, you know, all of the triggers for a three month span. But if you want longer term backtests then we need to use another provider like Polygon. So that provides several years of data, but it does require some coding skills. Now there are some no code back test software providers out there and you know, they are kind of hit or miss with the data. Sometimes it's inaccurate, they don't reflect the splits, stock splits and there's a lot of like a lot of data errors. So I think a hand track database is the best. You just cannot beat that. So what I do personally now is we go through our data by hand. So we delete false triggers. So if you trade pre market, you know that 8am There's a lot of false prints coming through, it causes a lot of triggers that are, you know, messing up the back test. If you don't have it hand tested or hand tracked, where you've deleted those manually, it's going to skew your results. So right now what we're doing is using Polygon for long term back tests. And what we can do is say, all right, at 10am Any gappers that are still above the open, what's the end of day result? And we see that the win percentage is dropped, the edge is reduced, the expectancy is reduced. So that means there's not as much return potential for holding those stocks. You might as well downsize your risk cup a trade or even look to flip long. Yeah. So this is where the real change has been for my trading personally this year is that I'm incorporating more long trades.

Yeah, because you were predominantly just short.

Yes, before this year I was only doing shorts and I would be really afraid to long a stock because it just wasn't what my identity was and it wasn't what the back tests would support. But now you're just seeing these patterns play out over and over again, especially on the short side. Instead of repeated losses, revenge trading on stock, you can just Flip long and make it back or minimize the damage.

So how often would you have to sort of review data or rerun data to make sure you're catching any changes or edge erosion?

Right. That's a good question. Right now, I have, like, several years of data just logged in my databases, so I kind of have an idea of what is normal and what is not. So I think this year we've seen a very drastic change in the market conditions, and that edge erosion is very real. So I think a hybrid approach is ideal for most traders. Now, if you want to take a systematic approach, that's great. I highly recommend that, especially for new traders, because it kind of gives you guidelines to follow and rules to follow to help you stay profitable. But if you want to kind of increase your profitability, you need to incorporate a little bit of discretion. Because I feel like I've been in this game almost 10 years now. If I'm not using any of the skills that I've learned over those years, then I'm kind of handicapping myself in a way. So if you have an edge from experience, then you might as well use that to your advantage and try to beat the competition. So right now, I am using probably, let's say 70% system, 30% discretion, and I'll look to lean more towards the discretionary side if these patterns become more difficult.

Definitely. No, it makes complete sense, as you said as a beginner, because it gives.

You a very fixed framework.

And, you know, as you say, intuition is a big part of it. And the only way, I think, to really sharpen that intuition and trust it is from that experience. Right?

Exactly. Like, one example of a pattern that I don't trade anymore is the parabolic short. And I'll show you guys an example of this right here. So in 2021, this was my main pattern, the pair of short.

Okay?

And it wasn't even much of an extension. It was only about 20% move. So let's say a stock is just kind of on low volume, and it just shoots up out of nowhere, up 20%. Right. I would be shorting it right here, looking for an instant mean reversion, because a lot of these times, these patterns will be popping drops, as they call them, and they would just fizzle out, right? Might bounce a little bit, but it just fizzles out. So you're looking at a good, you know, 15 to 20% return as it reverts to the. To the baseline level. Nowadays, these patterns are not as profitable because the volatility and the range of These patterns has increased so much. So let's say this is 2020, and the same graph in 2025 may look like this, you know, the same 20% move.

Yep.

But let's say the average Spike was like 10%. Now the average spike might be 50%. So you can't guess the top as accurately. Now trying to short on the front side is more of a guess, I would say.

Back then, was this the strategy that UA would take 3k to over a million dollars? Yes. Just like the key strategy you using.

With that strategy alone, I was not trading anything else.

Yeah.

It was just so effective because a lot of these patterns, they. We wouldn't see 300, 400% runners. Very rare. But now I almost expected out of everything that starts, I mean, it's kind of crazy. So now what we've done is we've taken a backside approach. So I'm not trying to guess the top anymore. Like, is the top here? Is the top here? Is the top here? I don't know. I know I'm not trying to guess. I'm going to let the chart form and show me where the top is. Okay. Right. So what we do is we look for topping action. Most people would take this entry right here.

Yeah.

But it's still not confirmed enough because a lot of these will reclaim and rip to new highs. Right. And then your entry is actually low and you're. You're drawing down on the position. So I will wait even further. That's a little bit more confirmation. Right. And then I also want to see where's the volume? Right. If the volume is declining on this kind of pattern, then there's a little bit more confirmation that this is the backside the top is in. Right. And then if you take an entry here, it's a lot safer than taking the same entry on the front side with more potential risk of it skipping up on you. Because if you take this entry here, your expected spike percentage is probably double than what it is here.

Yes.

Just based on the pattern and the. And the volume. Because on this candle, the volume is going to be the highest. Definitely. Yeah.

Right.

And it's definitely going to be lower on this part of the pattern because it's fading off now. So it's just so much safer to take a backside entry. Yeah. So if I enter here, then I can possibly catch a backside fade. And this has been my most profitable pattern this year, especially earlier in the day. I like to say that's an adoption.

Of your original strategy.

Yes, 100%. See, the problem with this entry back in 2020 is. It wouldn't occur.

Yes.

These would be fading so quickly that you wouldn't be able to get this entry. You kind of had to front run the parabolic entry, otherwise you would not have a play. That was just the way to trade these. Because there, there wasn't any secondary moves or extended, you know, spikes on these stocks. It would just be one and done. Pop and drop, as we call it. But now it's pop, reclaim, rip again.

Yeah.

Pop, reclaim, trap, rip again. So a lot of these are just creating extended moves and instead of trying to guess where the top is, which is extremely dangerous, it's better just to wait. Let the chart form show you a little bit more information and with that information you can make a better decision.

Definitely. Just for, again, the audience and even myself. When you're running the back tests and collecting data, you able to create scenarios where you're saying, okay, when price has done X, Y and z up here.

Yeah.

In correlation with volume, does that then spot out a different result for you?

Yes, 100%. So without getting into too much detail of our strategy, it is, there are a lot of criteria that I use now, more so than in the past. Volume is very important.

Yeah.

You know, the percentage extension is very important. See, before I'd be shorting things up 20 to 40%. Now I don't. Those are not even on my scanners. It's not on my radar. So that's just an evolution of our approach and we're just adapting to the markets.

Right.

If these patterns still worked, I'd still be trading them.

Why do you feel like the market has shifted so aggressively over these, over this four or five year period?

I think there's a lot of factors, but volume is the biggest one. There's way more volume in these stocks than there used to be. Let's say the end of day volume on one of these patterns back then would be like maybe 5 to 10 million.

Yeah.

Now it's maybe 50 to 100 million. Wow. So it's gone up a lot. And it's also based on the extension of the stock. If it's only going up 20%, 40%, it's not going to attract a lot of buyers or people because it's not going to be on any people's radar. But if something's going up 200, 300%, then all eyes are on it. You have short traders on it, you have long traders on it. And you know, recently there was the, the hyperscalper period. So they were Doing a lot of long trades with short time frames. So those traders become massively successful using their hyperscalping strategies. That creates more volume, more crowding.

Right.

And then the strategy grows and people are scaling accounts. Right. You have the Same traders in 2020 trading now with five times the size. So you have a lot of people trading a lot of size on these stocks. So the volume has, you know, I would say tenfold easily. So when the volume is increased so much, the patterns become more complicated, they become more extreme. You don't have these simple pop and drop patterns anymore. They just can't occur. When there's this much volume, something has to happen. So you have, you know, a lot of reclaim moves, a lot of fades, a lot of, you know, breaks of the highs. So even if I'm on a backside entry, say right here.

Yeah.

And it is fading off and I'll use the 30 minute rule. If after 30 minutes I'm in the green, then I'm going to continue holding. If after 30 minutes I'm not in the green and it's reclaiming on me, then I'm reassessing what to do. Right. I might be downsizing into dips, I might be cutting the position altogether or I might lower my stop to the prior highs. So I think the dynamic trade management is, is crucial to surviving in this market. If you have like a rigid approach of I'm just going to short here and at the close, which is what the systematic approach, you know, is, that's fine. You'll probably be able to extract an edge. But I think you can amplify that edge by incorporating that discretion, that discretion through over 30 minutes. You, you're managing the trade. Yeah. And you're just assessing what's happening. You're reading the price action and you're using the information that the market's giving you to make the best decisions.

Is there a specific time window that you'll focus, say on these setups that we're talking about here? Is there a certain time when you would clock off and then you're done for the day?

Yeah, 100%. So that's also something we found from our back tests. So I wouldn't have the answers for all of this without running these back tests. And then something I'll touch on is when we run the back test, it's not just some vanilla approach. We deep dive into it and look at every single criteria like time of day, volume, you know, percent extension. We look at, you know, fundamentals like float, market cap, you know, short float, Percentage, institutional percentage, insider percentages, all of these things to see, okay, is certain windows creating, you know, a red flag category or a positive expectancy that we can size up more on or have more conviction on. And what I found is that the earlier the pattern the better, especially for these backside patterns. So if it's like 4am, which is the pre market open from 4am to 6am is the ideal time to get these kinds of moves because you have the most time to allow it to fade. If you're going to hold till end of day, that's almost 10 hours plus. Right. So I found that the earlier timeframes produce the largest WINS, Whereas after 12 noon the edge is reduced also because there's more crowding in the market at that time, there's a little bit more manipulation and you have less time for the pattern to work. So in these patterns, these small cap patterns, time is your friend, the more time you have. Like if you're swinging these for weeks, your expectancy will be increased because like I showed you guys before, the, the chart is always downwards on these. But then you have the overnight fees and things. So I don't try to hold. Hold overnights, but if you have a larger time frame intraday, you don't have to pay overnight fees, but it's almost like an intraday swing.

Yeah.

So the earlier trades are the best. After 12, I, I kind of shut it down. I just find that, you know, the edge is reduced and by that time I should have a decent profit cushion on the day. So it's just easier to walk.

Got you. But cool. Yeah, so we'll do pros and cons. So I'll do cons on this side. So cons, as you all know, is not saying it's a bad thing, it's just more so something to be aware of when trading this strategy.

So.

Yeah, and then we'll do pros on this side here.

Yeah, for sure.

So in terms of cons, what, what.

Stands out to you?

I'd say it's not really a con.

Again, but it's something to be aware of. Yeah, you're making these decisions. You have to do that work to do the back test to collect that data so that you can then start having the confirmations and then start to utilize your discretion after the fact. Right. So like having to do the work again, not a negative. If anything it's a, it will probably be on the pro side as well because that is essentially how you build the edge in the first place, right? Yeah, yeah. But in terms of cons. You need to be aware that you have to do that work. You cannot avoid that back test and reviewing that backtest data. No doubt.

Yeah, I think reviewing the back test is more important than anything because it builds your conviction. Right. I can hand someone a database and we do this in our, in our program as we share data and Excel files and things. But that's my work. Yeah, right. I can't exactly share that with someone and have them feel the same way about it or have the same conviction in it because they didn't build it. So that's why I recommend to everyone build your own database. Start from scratch. You know, it doesn't take very long and there's so many software providers now that will do the work for you. Even if you don't have any coding experience, it's very easy to do.

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Now let's get back to the episode. How random question. Has there been any changes with the sort of rise and growth from AI in terms of making that an easier or better system for you?

Yeah, for sure. So you can use like ChatGPT and they'll run code for you and you don't have to have any coding experience and you can just say, hey, write me a code that will extract this information and it will just do all of it for you. Or you can basically copy and paste a script and it will find errors, it will, you know, fix them for you. So AI is amazing.

Yeah, yeah. Amazing tip.

Yeah.

On the pro side, what do we have on the, on the sort of pro side you think?

Well, I think for pros you're going to have the most important thing for a trading strategy, which is a proven edge. Yeah. It's not like a lot of these discretionary approaches where you're trying to make money based on, you know, intuition or chart patterns, you know, tape reading, a lot of these things that require a lot of experience. So when you have this pattern proven, you don't need a lot of trading experience to make money from it. And it also just kind of strengthens your conviction in it when you're going through drawdowns. Just because there's an edge doesn't mean you're going to win every time, doesn't mean you're going to be breaking new equity highs every day. You're going to go through drawdowns. And the only reason that I stick with these strategies is because of the proven edge. I know over time it will produce a return so I can go through a three month drawdown and not be flustered.

Another con, would you say, based on what we talked about is called quite large stop losses.

Right? Yeah. So with the wide stop, it's kind of required to retain that edge is if you're using a tighter stop, the returns won't be as high. Yep. Because you're more likely to get stopped out on one of these manipulation moves. Right. And once you're stopped out, the game's over. Right. You've lost that trade. So you've also lost the opportunity to turn that into a winning trade. So by using a wider stop, you have a higher win percentage, but it is add the sacrifice of your risk to reward. And some people are not a fan of that. So I will say the light stop can be a conversation.

Exactly. And to your point, as you mentioned earlier, it's necessary based on the data. Right. To have that profit factor which is, as you say, most important. Really. Yeah, exactly. Overall. But as you also say, a lot of people put focus on risk to reward. A lot of people put focus on, you know, being able to handle, say that stop loss versus what really is going to make you money over the long term as a trader should be the main focus.

Exactly. And I'll say this is a con of the strategy is that it kind of goes against conventional trading wisdom.

God, yes.

Yeah. You're taught from, you know, most beginners are taught you should have three to one risk to reward. You shouldn't have bigger losers than winners.

Yeah.

That's kind of like a mantra in the trading community. And I've kind of tried to disprove that over the years with my data approach. And just using mathematics to show us what's optimal versus what your guru says.

Right.

We've just kind of been force fed this information. So I think using the mathematics helps you kind of debunk some of these myths. But it is hard to change the narrative. A lot of people are kind of, you know, they're brainwashed into thinking a certain way and it's hard to break those molds. So I will say that's a con for some, but others it could be a pro because they want to be an outlier. They want to trade against the grain anyways, so it might fall into their personality. So I think personality is a big thing with these strategies in terms of pros as well.

So you've got the proven edge you have as well as part of that. It's a very good, would you say? I don't say simple, but it's essentially like a go to strategy that you could pick up in terms of the small cap world. Yeah, it's one that you can start to use and then recognize quite quickly.

Yeah, 100%. So the benefit of a systematic approach is that it's very simple. You have one entry, you have one exit, you have one stop loss, you have one cover target. There's not a bunch of different rules about, you know, price, action or certain time frames of what's happening or you know, what the tape is showing you, or if there's a big seller on the bid, what do you do? There's not a lot of rules. You just ignore a lot of it. A lot of the noise is kind of suppressed because of these rules. But like I said, this is a purely system approach. I have incorporated more discretion in my trading to account for some of that noise in the market. But that's only because I know what's noise and what's not. And that takes years of experience. So I think for beginners trying to learn the system approach. Stick with the system. Stick with the system. But watch the trading day. Like keep an eye on what's happening and see over time. Okay, if I see a large bid, you know, a bid prop, what does that mean? Does the stock go up or down? Or if I see a big seller.

What does that mean?

Right. So just a lot of these nuances will make sense over time, but you need to be able to put that into context. And that comes from experience.

Definitely, definitely. So we'll just add that there in terms of simpler approach.

Yeah.

Simple approach. Any more pros or cons before we move on to the chart examples, One.

Of the cons you could say is the entry cost. Because with shorting a lot of these stocks, there's a hard to borrow fee. So you have to pay. Depending on your broker and the float of the stock, the demand, the time of day, the fees can be quite high. So I try to limit the fee to around 1 to 2% of the stock price. So that way you retain your edge. If you're paying, you know, 5%, it can negate a lot of the edge. So the fees can add up. Finding the right broker is important for this strategy. A lot of brokers, they don't have the shares to borrow. Yeah. So you need a specialty broker that specializes in short selling. Sometimes they have a lot of margin requirements. So you do. It is harder for smaller accounts to be successful with this Approach, you do need a bit of a higher equity to have that freedom to trade. Gotcha.

Definitely. So again, cons wise, it's more so things to be aware of. So broker selection, entry costs are going to be very important when utilizing this strategy, but in general as well. Right. So that's not even just this strategy. It's based on the small cap world as a whole. Is you can't focus on these things.

Right.

If you don't, it can easily. Well, it seems like a profitable trade could easily just be dissipated by the cost of the trade itself.

I think one other thing we should mention is the risk management or the, the potential for outlier losses even beyond your stop. So a lot of these small cap trades, they're becoming crowded and they're low liquidity, especially if they're becoming extended. Say it's a 500k float, right. And there's a lot of people in it and they're all trying to stop out. So a lot of these things, they can shoot into halts, they can gap up. So sometimes it can go beyond your stop. So risk management is definitely critical and the scalability, you have to keep your size within reason.

Gotcha. Perfect.

Cool.

Let's go on to the chart examples now.

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Now let's get back to the the episode.

So guys, now that we've gone over.

The actual strategy and concept on the whiteboard, gone over the pros and cons, we're now going to look at exact chart examples that Chris has actually taken trades on using those strategies. And we're going to break them down, we're going to go through them and you're going to see how they are, you know, exactly what we just covered on the whiteboard on the actual charts themselves. So actual trades that have been taken.

Right. So this one is a trade I recently took on crcl. So a lot of people remember this runner and this was more of a discretionary trade. It was on a multi day run and it was starting to get extended so I wasn't really looking to trade it on the front side but it became so extended that I just had to take a chance on it. So I luckily got, you know, a top tick entry right here and once the tape kind of shifted here you can see so many red candles and it helps to see the tape. Right. You see a lot of selling volume. You can just kind of assume that some sell off, some mean reversion will occur. Yeah, so that's the reason why I didn't take any profits on this way down. I was fairly patient with it. And this was a prior day's close. Right. So a lot of these moves, if they're going, you know, green to red, they will defend that level at least once. So I've learned to take profits in these zones just to downsize my risk, take some money off the table and then look to re hit. So the recycling is one of the biggest approaches that I've taken this year. Large cap, small caps, whatever it is, just trying to identify the range that it's playing and make more money off of the moves within that range versus looking for a one directional move which is not as common. Yeah, so you catch this one move and let's say you take half your profits off here, you've got some cushion now. And then you start looking to scale into a bounce.

Right.

And then I covered into the, the next wash and then just did the same thing, rinse and repeat. And by doing this I was able to make a Lot more money versus just one entry and then one exit.

Yeah.

At the, at the bottom of the move. So this is where recycling and it is a skill, it takes time and a lot of intuition to learn. But once you do learn that skill, it can be highly profitable.

Would you say in terms of the recycling side? I know this year you've had back to back six figure months.

Yeah.

Would you say that's a large reason for that is because you've implemented that recycling?

Yes, definitely. So the recycling helps in amplifying your winners, but it also helps in reducing your losses. And I think this is the key for me. That's why I've not had many big losses this year. I think my biggest loss was like 40k in February. But you know, in years past I've had six figure losses and those were fairly often and they just hurt your confidence a lot. So by being able to recycle, even recycling for a loss is a key too because you're able to take a, you know, $10,000 loss and minimize it to say 5,000.

Yeah.

By just taking a little bit of sides off and recycling those shares over and over again. So that helps a lot. This was a pattern that I traded earlier in the year and is more so of a front side short. But the reason I took it is because it, you see how it halted up here and then failed. Yeah. A lot of these will break the highs to create that liquidity event and then they will eventually crash back down. So instead of taking that early entry where a lot of people are eager to jump in, you know, a lot of short sellers will short this halt, resume. And that's what we used to do, but now we're waiting, anticipating for that move of the clear out and then getting in. So it's more of a patient entry, it's more of a calculated entry and obviously it paid off in this example with a very nice, you know, 20, 30% gain here.

In terms of one question I probably should have asked earlier, when it comes to your stock selection, is there particular criteria on that side of things in terms of whether it's market cap, whether it's volume, whether it's liquidity or the same things that are specific for this strategy that we've covered?

Yeah, 100%. Good question. So the market cap is probably the most important thing for me. I don't want to trade anything over like 200 million market cap because it just kind of confirms the legitimacy of the company. If it's over 200 million, it's not, you know, Really a shitco, as they call them. So you're not going to get these pump and dump patterns as often. And some of the parabolic moves could be driven by legitimate news or catalysts. Yeah. Which may not sell off the same way. So you can't expect the same downside, like mean reversion. So I do like to short ideally under a hundred million market cap. And also the institutional percentage, I don't like institutional percentage over 40% because it also once again confirms the legitimacy of the company. It could be more of a grinder stock. And you're not going to get those pump and dump patterns.

Gotcha.

So I think this stock, I mean, most stocks I Trade are under 100 million for sure. And this one here was a parabolic backside short. So instead of trying to guess the top and short into the parabolic, the first parabolic spike, I'm looking to wait for a bit of a topping candle. So this, this wick right here kind of confirms that it's failing. And then you'll also have volume profile that's declining as this comes down. Right. And then you want to add on the way down to maximize your return once it's confirmed. Yeah. Right. You can kind of see a flag right here. And on this flag break right here, it would probably be a dead pattern if it was going to break to the upside. Then I might cut the position as it's reclaiming. Yeah. But right here, you enter on the backside para and you have this flag here that's broken on this candle. Then you look to hit a pop. I'm not just slamming the lows as it breaks this candle. Right. I'm waiting for a pop so I can get in on a high and then cover on the next candle. Because look, if you look at this move, it's almost a 50% retracement from the highs.

Yeah.

So 30 to 40% retracement is the most you can expect. You don't want to get too greedy because then you might catch yourself without taking profits as it's reclaiming on you.

So that element of knowing that data comes from that backtest.

Yeah, yeah, 100%. So it also helps with your coverage targets, knowing, okay, we're in the green 20 to 30%. How much more can we expect on this? Where can we expect to bounce? Right. What the volume profile should look like. Yeah. If any of these things are outliers based on the normal pattern of the ADF or a pop and drop pattern, then we might change our approach or downsize, take shares Off. So that's the freedom that we have now with the, the hybrid approach. Yeah. Whereas if you're in a purely system approach, it's like, well, the system says I should hold to the end of the day. I can't really do anything. Sometimes it feels like you're in immense prison.

Yes.

So incorporating a little bit of discretion gives you that freedom to exercise your intuition and skills over, you know, a career. This one here is a multi upside halt pattern. So I like shorting these after about four to five halts in a row. So this one halted up, you know, 1, 2, 3, 4, 5 times in a row. Are these, do you know, time frame.

Wise what that would be is that.

These are time frame or these are five minute candles. Got you. So, you know, you have these low float stalks that are highly manipulated and it's very easy to kind of shoot them into halts with all low volume. Yeah. So when they are rigging these, they'll just shoot instantly into halts and you can notice the bottoming wicks. So they are testing the halt bands.

Yeah.

So it opens here, but it wicks down and then shoots up into a halt. So this is trapping short sellers because short sellers will see the dip on the resume and slam the lows and then they get flipped inside out and shot up into another uphold. So this is a common manipulation tactic that they use and buy the fourth or fifth hold. People are max pain. They're tapping out, they're saying, get me out of this thing, you know, at all costs. Because they don't know how far it's going to go. But in general, usually four to five halts in a row is the max that these things can do before some kind of mean reversion. So if you see this pattern where it's really thin, it's just shooting into halts. After testing the lows, I just wait. I don't try to guess the top on these and just jump in.

Of course, Yeah.

I will do a starter at about four to five halts because that's likely the top again.

Backed by the data.

Backed by the data. So the only reason I have conviction to jump in these things is from those back tests and knowing how far the average extension is. Yeah, right. If it's, if it's met that extension criteria or that median. The difference between an average and a median is important to know too. So that all comes from our back tests and that gives me conviction to enter these trades. And since my entry was here, I have a lot more patience to hold for the fade. Whereas if I was entering here, adding here, maybe my average would be like right here.

Exactly.

And you're, you're panicking the entire time, just praying that it comes down and you're just like, get me out of this thing.

Yeah.

For a flat trade. Whereas here you're in the green the whole time. You're relaxed, you're able to make better decisions because you're not flustered.

Yeah. And plus you go straight into profit. Yeah. Therefore, wherever you decide to cut, at least it's a positive trade versus obviously that scenario, you said.

Yeah.

You'll go through all of that turmoil just to be flat at the best case scenario.

Yeah. That's the worst feeling in the world. So it's better to be on the green side of things.

Of course.

Okay, so this is more of a recycling approach chart. This is a pre market time frame I believe you can see here. So once again, I'm just trying to find the range that the stock is trading between shorting the pops, covering the drops, and then just repeating that process over and over. And you can recycle the shares. And like I said before, this helps reduce your costs because you're not having to locate so many shares. So you can locate, you know, a certain amount of shares, then you take some off, then you add them back. Right. And then you're making.

Is it kind of like an allocation? Yeah. That you have. So even when, if you're not, if you've used them, you can still reuse them over and over.

Yes. So most stocks will give you those locates for the whole day. Got you. So you can just recycle them over and over instead of having to pay, you know. Yeah. Excessive fees. Building on a position. And then also you're, you're building a profit cushion, you're reducing your emotions and you're able to make money without oversizing. Yeah. So that's key as well. So this was the open here. And after these, these large sell offs, it kind of shows the hand of the stock that it's a failed pattern.

Right.

Because it held this low three times. And once it cracks here, then you can kind of assume that the patterns failed. I'd be more aggressive shorting pops after that point. So these here, I'd be sizing in a little heavier once it's failed because the probability of it reclaiming is a lot lower. And then I'm just repeating that same process all the way down, taking profits into washes, reshorting bounces when they come. And at the end of the Day, I think I made, you know, 10, 15,000 on this trade. So it was a, it was a good trade and I wasn't even in that much size. So very efficient trading there. And here's another one recently, similar approach.

Right.

Just shorting into pops, covering drops and you can see, you know, certain ranges that they're trading. Trend lines if you want to use.

Yeah.

You know, if you use a lot of charting, I use moving averages. EMAs. I feel like the, the 3 minute chart and the 20 and the 15 minute chart are the most respected among the EMAs. The stock like to respect those charts. So I use the 9 and the 20 EMA on those time frames and I do find that they respect those, those moving averages quite often.

So that just. Would that just be something like an added confidence for when you're.

Yes, recycling trades. Yes, exactly. So I use those and also trend lines, you can see like, you know. Yeah. If we look at this chart too, like there's trend lines on every stock that you want to look at and those just help you with the recycling. Where it's likely to reject on a, on a pop. Where it's likely to bounce on a dip.

Yeah.

So those are the areas that you want to be buying and selling. Right. Buying support, selling resistance. Just keep it simple. It doesn't have to be too complicated. And every time that you take profits and you re hit, you're just building that profit cushion and you're able to reduce your emotions. And I think that's key. Trading with small size and just building a profit cushion. You don't have to be in a lot of shares to make good money on these stocks. And this was a trade from a few years ago, a backside short. So instead of trying to guess where the top is, we're just waiting for, you know, some topping action, a bit of a wick and then hitting the downside candle and then catching a clean fade. This is obviously a great example of what the backside shorting can do for you and made, you know, 16 grand on this trade. Very minimal risk. Whereas if you're shorting the front side, trying to guess the top, you're risking, you know, blowing up. Yeah. Whereas you just wait for the chart to kind of show its hand. And this is where patience comes in. Because a lot of guys, they're eager to jump in.

Yeah.

They just want to get in the trade right away and make money right now. But it doesn't necessarily work that way. You have to be patient and. And just wait for those good entries. Exactly. Yeah.

And that looks similar, this in particular one anyway to that first red day that we had with Alex to mes in terms of like you see that first red candle and then from there is parabolic. The opposite way. Is this a EMA or is that vwap?

This one's vwap, the green line. So this would be an intraday chart, but it could still also be a daily chart.

Yeah.

On some of these multi day runs, if you wait for the first, you know, the red day, then that's likely signaling the top of the run and you can catch these fades. And if you're swing trading, you can catch, you know, big moves on the downside. Exactly. This was another chart recently where it's a similar approach. Just trying to recycle the range.

Yeah.

And this was one where I was actually losing on the trade it was going up against.

Now I was going to say this.

Was this a long trade or was this a short trade?

Yeah, all of these animals are short trades. I may throw a long in here or there, but the majority of the, the bias is short. So this is an example of let's say a stock is grinding against you, but you can still make money on the trade by recycling efficiently. Right. So if you were to short my first entry right here and to cover at my last entry here, that's a red trade. Yeah. On the short buy. So yeah, that's a red trade. But if you're able to recycle, you know, numerous times throughout the day, hitting the pops, covering the drops, doing it over and over, you can end up flat or even green on this trade. And this is where I talked about minimizing the losses.

Yeah.

Once I identify that a stock is not really behaving, then I go into recycling mode and I try to minimize the damage or get out alive when a stock's not really respecting the price action that I expected.

So this is a one minute job.

Yes.

And as you said, this is like going into recycling mode to survive. Come out flat or, you know, slightly green for the day, hopefully, or small loss. Great. If anything, what's the reality of, you know, the concentration that you have throughout this time period? This looks like it's 8:21, it's like a three hour period.

That's several hours.

Yeah. So what's that like, you know, in reality of you having to, to lock in and really focus on, on executing efficiently and effectively?

Yeah, it's definitely, you know, you can compare it to a performance sport. You have to be dialed in and you have to be Watching the chart, you know, every step of the way, making the right decisions. And you know, that's why trading is not for everybody. It's very difficult.

Yeah.

But if you do this, you know, for years, you can build the skills and the experience to, to navigate the markets and, and try to increase your profitability even when a stock is moving against you.

Yeah.

So, yeah, this is a good example of that. Because if I were to just do a systematic approach with one entry here and then one exit here, you're just sitting there throughout the day watching it go against you and it's kind of demoralizing. Right. Because you know it's not going to come down.

Yeah.

Right. It's been grinding against you. You can see this upwards trend line holding. It's been holding for hours. And every dip you think, maybe I should cover here, maybe I should take some off. But you don't because you're following the system.

Yeah.

So when you give yourself that freedom to say, hey, you know, this is dropping a little bit, it's, it's nearing that support trend line. Let me take some shares off, let me cover and then let me rehit them higher. So by doing this you can minimize your losses quite a bit. Here's another trade recently, more of a parabolic backside. So instead of hitting that first candle.

Right.

I'm looking for the pullback and then the clear out of the previous highs.

Liquidity.

Yeah, exactly. Because this is the most likely reversal point on the chart. Right. Knowing how difficult and trappy these patterns are, they're not just going to drop it from here.

Yeah.

That pattern is becoming more rare.

Yeah.

So what you're seeing now is the reclaim, the break of the highs. And even here it's still very choppy. It's a lot of indecision. But you have the conviction from the data knowing that these will likely fade after a retest of the highs. A break of the highs.

Yeah.

And then you catch the eventual fade. Right. Like let's say your entry was here on the first spike. You'd have to go through this entire reclaim move, all of this chop, not knowing if it's going to continue on you. So that's burning mental capital. Yeah. Whereas if you enter here, you're immediately in the green, you're not dealing with as many traps and you're catching that downside fade. So it's just putting yourself in a better position will help you with your trading and decrease your stress levels, which is key for me.

Is there a timing element as well? So like with this Particular example is the time of day or where the time is positioned with the alongside the charts and what's happened. So that liquidity event taking place, was it near the open? Is that something that's a factor in two trade?

Yeah, 100%. So time of day is something I take into consideration along with the volume. So if this occurred earlier in the day near the open, I would have more conviction in it because they're looking for those early liquidity events and then eventually just dump the stock.

Yeah, right.

But they're trying to extract as much liquidity as they can out of short sellers throughout the day. Now let's say this is midday. It's been grinding along, consolidating for a few hours and then it starts reclaiming, breaking the highs. It's a little more dangerous because it's had hours of shorts being trapped, consolidating in a tight range. And when that range expansion occurs and it just starts exploding, that's when you have the moves that are shooting into new highs breaking out later in the day. So those are ones I'm not as likely to short. Anything after 10am that's holding up and showing strength, I think is a long, it's, you should be more long, biased. Anything, you know, before that the volume profile is decreasing or if it's showing, you know, lower highs, breaking support, then those are obviously short patterns. But this was early in the day so I had conviction in it.

Gotcha.

And yeah, it played out nicely. Here's another trade recently, this was in pre market. So as you can see, this is quite a big move. This went from 150 up to 450. So that's the range that we're dealing with in this market.

It's very, very interesting because I remember Lance was on a podcast and he was saying how like, you know, pretty much no other asset class really has as much edge as stocks and small cap stocks. And you can see it as well, like you wouldn't in crypto. This is what people want in crypto, right? Yeah, they want to see these numbers. But then it looks like you're seeing this all the time. And in the small cap world.

Yeah.

And I'm quite surprised to see that there's not. There are a lot of small cap traders for sure, but when it comes to now, this is happening on a day to day basis, right?

Yeah.

What do you think it is?

Do you think it's the, the hardship of being able to identify the right stocks and then also being able to, you know, create the right place and have the right edge to be able to execute day in, day out, of course not be profitable every single day.

Yeah.

But do you think that a lot of people just maybe aren't aware of the edge and the opportunity that is available in the small cap world?

Well, I think it's growing for sure. And it's a lot of people are gravitating towards, you know, small caps and they are going to be removing the PDT rule.

Yes, yes.

So I think that's keeping a lot of people out because you need, you know, 25,000 to be able to day trade these stocks. Another barrier to entry is the brokers. Right. Not every broker has these hard to borrow locates.

Yeah.

So if you use a typical broker, like interactive brokers or you know, Charles Schwab, they're not going to have these kinds of shares to borrow. So you do need that niche broker. But I think, you know, it is becoming more popular and we're seeing crowding on the short side for sure. That's why it's, you know, these moves are squeezing 2, 300%. See, normally, you know, in 2020, if I was going to enter this trade, I'd probably enter right here.

Interesting.

No, on that 20 to 40 spike.

Yes, yes. Right.

The front side pop and drop. Because we would expect it to just come back down.

Yeah.

But now the patterns are becoming so extreme that we don't try to guess the top anymore. It's just too risky. Because if you're going to jump in here at 250, your drawdown is almost 100. That's just not fun. Even if you have a wide stop, you don't want to be down that much. This is not comfortable.

Yeah.

So it has like a.

It takes its toll, right?

Oh, for sure. I mean, let's say you enter at the same point on the front side.

Yeah.

So you enter at 310. Let's say you had to endure a one and a half point drawdown, which is quite a bit. Right. That's like 40%. Whereas if you enter here, it's the same average price, but you're immediately in the green. Your drawdown is almost nothing and you're just a lot more comfortable. If you entered on the front side, you'd probably be taking it off here.

Exactly.

Because you'd be panicking. You'd be like, I'm out flat. Just get me out of this trade. And you'd be missing all of this profit.

And that has a knock on effect as well. When you then see the profit, you could have had.

Yeah.

And, you know, you got out. It normally leads to the next bad decision. Yeah. Or the chase of the next trade.

Exactly.

Or getting in at lows and the same price.

You know, or what you may do is say, you know, this stock is. Is very strong. I'm going to cut it and flip long here, and you revenge long, trade it. Right. So let's say you short here and you cover in panic, cover up here, and then you catch a dip of think, okay, I'm going to buy it here.

It'll probably go.

And then you lose even more. So this can happen. It's all about that first entry putting yourself in a good position.

Yeah.

Right. So instead of guessing the top, which I don't try to do anymore, I just wait for the stock to show its hand.

Right.

Give me more information. If you see these kinds of candles, like huge topping wick, multiple green, red candles in a row. And I'm not slamming the lows here. As you can see, I waited for a bounce. So even on the backside, I'm not just slamming in lows. I'm always looking for a bounce so I can get the best possible entry.

Yeah.

And then from that point, you can be a little more patient because then you can see the volume is dropping. The pattern's working. That's confirmation. And that's a $10,000 trade on a 36% winner. Right. So very little risk. So that's what I'm trying to do this year is just waiting for these extreme moves because they are going to happen.

Yeah.

As you said, they happen daily and multiple times a day. Back in 20, 20, 2021, these would never happen. Maybe once a month.

Yeah.

But now they're happening multiple times a day. And I think that's a product of the crowding.

Yeah.

Right.

It'll be interesting to see how that continues to evolve, especially with the PDT rule coming. Yeah.

I think that rule change is going to be like another Covid event where a lot of new traders are coming to the market and you're going to have a lot of more money in these plays and even bigger squeezes. You know, the definition of an outlier is going to change every year. Interesting. Yeah. This year, you know, you see a thousand percent run or you won't even be surprised. A few years ago, that'd be crazy.

Yeah.

And next year it'll be, you know, 4,000, 5,000%. So it's just going to keep going.

What are your thoughts when you. When you think of that? Is this something that you kind of accept and know as part of this game or is this something that you, you worry about or you know, how does that, you know, compute after all this experience and years of trading, knowing that you probably have to adapt and change?

Yeah, well, I think, you know, with these markets, adaptation is everything and you're constantly trying to stay ahead of the game and retain your edge. And these are ever changing markets. The volume profile has completely changed since I started trading in 2017. You know, the players involved in these markets, it's not just, you know, your typical stock twits, traders and things like that. You've got some big time players in these names. So you have to be on top of your game, always refining your edge and your data to, to be profitable. And I think I've done a good job of that this year. I've been able to make some key adjustments with that hybrid approach. Exactly. Yeah. And I'm going to continue doing that. And hopefully the markets, I mean, I welcome more players in the game because it means more opportunity, it means more scalability of the setups. Like I know people who are having record years, career years right now despite it being so difficult because they're able to adapt and take advantage of the opportunity. Exactly. Yeah. You should see it as an opportunity, not as a, you know, a negative, as people coming in as a challenge. And you know, I, I like the challenge, so. Exactly. Yeah. So here's another chart recently where it's more of a grinder parabolic. So you can see that it broke the high several times after a certain point and this kind of choppy action like these are 15 minute candles, I think. But you can see every time it breaks the high, it wicks back down. Right. Breaks the high, wicks down. Breaks the high, wicks down. So it's not really showing that much strength. It's not shooting up into like. Yeah. Full bodied green candles one after the other.

There's that resistance. Yeah.

So after, you know, three or four of these breaks, you can assume, okay, maybe it's going to top out and find its. And it's top. And you know, this one I entered right here and caught a nice fade as it dumped back under $1. So if I'm immediately in the green like this.

Yeah.

I'm more likely to hold because it just gives me the confirmation that I caught the top.

Interesting.

I can sit more comfortably in the green and instead of riding, you know, in a drawdown, if I entered from here, you'd have to ride a drawdown for say 30, 40 minutes. Your mental capacity is a little burned. You just want to get out of the trade. So this is where the entry is everything. Getting a good entry can allow you to capture the profits because if you're early on the front side, you're probably going to be burnt out and just take it off for flat or small green trade.

Yes.

You're not going to be able to hold for that extended, you know, rug pull at the end. So this is where you know, the entry is everything and it all comes from our back tests and our data.

How often do you select a trade like this? How often do you end up trading the same ticker again? Or is it a case where you, once that sell off's taking place is that's done and you have to locate and find and the next trade.

Right, big question. So I will do a recycling approach on a lot of these stocks. So let's say I, I did a full size entry here and a full size exit here and I was out of the trade.

Ye.

I wouldn't necessarily take it unless it reclaimed and made some kind of a move towards a prior resistance area. So right here like $1? Yeah, it was around 90 cents at this point. If it came back over a dollar then I'd be interested in scaling an entry. So I'd probably hit, you know, a few shares at 1, a few at 105, 110 and look to recycle a small trade and just add on like wallet patterns. But normally like the meat of the move is on that first trade. I like to make a chunk of it and then just add on a little bit. I don't want to risk my profits too much. Yeah. So I'm not going to be like double dipping with full size on the, on the reclaim attempt. I'll just do a small trade and just add on to it. But good question.

So there you have it everyone drop a comment of your biggest takeaway from this episode. This very specific model and the insights into systematic trading but then also including.

Discretion and how the markets have changed. And as traders we have to change as well.

Super excited to see how the small.

Cap world starts to adapt in the next 1224 months. And obviously links for Chris will be.

In the description below.

So make sure you check those out.

Also and as always like subscribe this has been chart fanatics.

Until next time. Take care.