When traders get bored, dangerous things can happen.
This week, while waiting for the appointed time to record the SteadyTrade Podcast, host Stephen Johnson decided to jump into an impulsive trade to kill some time.
Let’s get one thing straight: The SteadyTrade team doesn’t suggest that you EVER trade because you’re bored.
Impulse trades can be much more of a gamble than those that you enter after careful research and consideration. That said … since Stephen already took a position … why not ride it out and see how it goes?
This week, Tim and Stephen abandon their regularly scheduled podcast to broadcast Stephen’s short-selling adventure in real time. Will it end in joy or tears?
Stephen Commits a Trading Sin
On April 29, 2019, at approximately noon, Stephen committed the ultimate trading cardinal sin…
He traded because he was bored.
He saw an opportunity to short sell the stock ROAN, and he took a position. While waiting to see if the stock’s price will fall, he and Tim evaluate the trade.
What Tim Sees in This Trade
After chastising Stephen’s lack of impulse control, Tim evaluates the trade in terms of what he sees. These observations can help you evaluate potential short sales of your own:
- Terrible long-term chart. This chart is a disaster, with a huge gap down in August and a steady downtrend since. Tim explains why this makes it a good contender for a short.
- High float. This stock has a float of approximately 150 million. What does that mean? Tim explains, including possible implications for the trade.
- Recent green day. A few days ago, the stock had a green day based on buyout rumors … but those rumors might be false. In that case, it can be a great short sale!
- It’s never broken below VWAP. The stock pulled back that morning, touched the VWAP, and then ripped back up to the high of the day. Is this worrisome or a sign that what goes up must come down?
- Trading high. ROAN is currently trading at 10 times its daily average. Without a strong catalyst, could this potentially be a sign that it’ll turn around soon?
Concerns About This Trade
Tim agrees with Stephen’s short-selling thesis on this stock after a brief breakdown. But he still has some reservations:
- Timing. Stephen’s attempting a midday short, which often doesn’t end well for traders.
- Stephen’s mindset. Tim’s said it before, and he’ll say it again: Entering trades because you’re bored is usually a terrible idea. He explains why this messes with a trader’s psychology, increasing the likelihood of making dumb mistakes!
In the episode, Stephen explains his reasoning for entering the trade, including:
- A bad time for biotechs. As Stephen saw it, the market wasn’t too busy at the time, and plenty of biotechs have been failing lately. Could ROAN be the next to fail?
- Fake news? ROAN was up on bio-news that he felt would likely fizzle out, and it had a bad long-term chart.
- An opportunity. As Stephen saw it, the time was right. Listen in to hear what he’s risking and how he settled on these risk levels!
The Emotional Journey of Live Trading
Throughout the episode, you’ll get a real feel for the emotional rollercoaster that comes with trading.
As the stock approaches its high of the day, a panicked Stephen is (in his words) on the verge of pooping his pants. Then as the price starts to drop, he’s jubilant, ready to buy everyone a round to celebrate.
But will the trade go in Stephen’s favor? How low will the price go?
Will the whole thing flop as the stock rebounds on news?
Be sure to listen to the entire episode to hear how the trade worked out!
Got Something to Say?
Hey, do you have a question about this episode or a trading-related topic? Hit us up!
P.S. Did you know that if we choose your question to answer on air, you can win a SteadyTrade mystery gift box? Ask away!
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