Momentum Doesn't Reduce The Risk For Loss

Momentum is back in full force in the market. I’m coming off of a week that saw three days over $65,000 and two days that had me over $$100,000, putting my total net profits at just above $400,000.

That’s not to say it wasn’t a tricky market to trade. My biggest trades last Monday were in Kaixin Auto Holdings KXIN, which was the day’s second-leading gap stock after it popped over 100% in the premarket on no real catalyst I could find.

However, KXIN was selling off into the open and gave up nearly half of its progress in the morning. Overall, the chart was looking a little weak to hop in right at the bell and I was tempted to just move on. What ultimately convinced me to take a trade was the break over Volume Weighted Average Price, around $3.30 a share. After I got in, the stock popped over $3.50 and I hit the bid for $1,500.

With a little profit in KXIN, I decided to give it another shot for the break above $3.55, this time with a little more size, and it jumped over $4.00 for about $3,000 in profit. But again, the stock fell victim to chop as it got near its premarket high around $4.20.

I kept tagging KXIN through the first hour of trading, watching it pop, then consolidate, then pop again. I did this pretty effectively all the way up until 11 am when it started to squeeze up past the range it had been tracing for the past 90 minutes. I had run up against some selling that dragged down some of my profits and was considering wrapping up when trading volume picked up and pushed KXIN over the $5.50 level. I got in pretty aggressively and took it all the way to the high of the move, around $10 and I was suddenly up $75,000.

Then the chop returned, the stock flushed below $8.00, dropped a full dollar in a one-minute candle, and I was stopped out for -$25,000 from that total. Then it popped above $8 again. Then it flushed out. Jumped again, then dropped. The stock ended up stair-stepping all the way to a daily high of about $13 after opening at under $3.50.

I was able to walk away from KXIN with about $97,000, but it was hard-fought and looked pretty brutal in my P&L.

That choppiness and lack of consistent moves kind of plagued my profits from last week. I experienced similar drawdown in Tengasco, Inc. TGC on Wednesday that ended up eating into my total by about -$30,000. Thursday saw a huge drawdown in Sequential Brands Group Inc. SQBG that, luckily, I was prepared enough to avoid when I started feeling the stock had become overextended.

So while buying looks back in vogue in the approach to November, there remains a lot of pitfalls in the market as traders look to get in and get out of these runners quickly. Traders should keep tabs on the levels they’re executing at, scaling their share size and building up a cushion before going all-in on a mover. Even in a strong market, account for risk can mean the difference between a big green day or a total washout.