Madaz prides himself on keeping his kill-to-death ratio very high (~273 kills, only 17 Deaths for a 94.14% kill rate so far over the past 4 weeks) but once in awhile mishaps do occur. I’m going to try to document these cases so that you can learn what went wrong and how you can avoid mistakes like this yourself in the future.

CASE STUDY: DCIX – 11/3/17

MISTAKE: LETTING AN EXTERNAL MENTAL BLOCK CLOUD MY BIAS

FUN FACT: DCIX was also the same stock around the same time last year that was a huge part of Madaz’s worst trading day ever. DCIX doesn’t like Madaz.

Look at this chart. Take a good look at it. Actually go ahead and just steal it. Yeah, just right-click, “Save Image As”. If you’re smart, you’re probably already one step ahead of me and this image is already saved next your hidden porn stash (oops did I just give you away?).

Anyways, this chart is one of the craziest intraday charts I’ve ever seen. DCIX had a 389% short interest with a supposed float of only 2.66M and an outstanding share structure of 2.86M (I’m aware there are other sources that have both these numbers a lot lower, <1M for both, but for the purpose of this post I’m going to go with the more conservative numbers).  This stock started off as your usual morning pop and drop and then your usual post 10AM lull grindback and VWAP test and then bam!  Next thing you know this thing goes from 4s to 19s, leaving behind a merciless, bloodstained trail of massacred shorts not knowing what hit them.  Unfortunately, this day I was one of the casualties.

P/L:Flaw in recent psychological adjustments made me fear switching to long $DCIX led to first red day in 20. Couldve been A LOT worse $ISIG pic.twitter.com/WVbJFOSz0L

— madaz (@madaznfootballr) November 3, 2017

So how did I fuck up? As you guys well know, my recent spell in $DGLT hell was well documented, if you’ve been living in a cave and somehow missed this entire episode, you can watch the recap video here.

I said that it completely changed the way I saw trading due to it’s traumatic effect on me. However, it created this extreme irrational fear in my head when it came to trading after the open, where all of the halts have seemed to take place so far. Until today, this had a very positive effect on my trading as evidenced from my 20 day win streak where I made ~$75,000 during that stretch. I only used size at the open, make my quick couple grand and then downsize substantially as planned to protect my profits and account for halt risks, such that if I were to get stuck in a halt, it would be with small size and the consequences would be relatively harmless. Also understanding that most halts usually end up favoring shorts, I generally had a slight bias towards the short trade after the open vs. the long trade.   If you were to play a game of “Would You Rather?” in this situation: Would you rather be stuck long in a halt or stuck short in a halt? History would dictate you’d rather be stuck short, hands down.

But during this hot stretch, we never really experienced an epic intraday squeezer quite like DCIX. These squeezers usually take off close to or during lull, can squeeze all day, never fade and close at highs. This is one of the bases that wasn’t covered by this new part of my strategy. In a situation as such with DCIX, where a stock that is going in an uptrend and is a clear long during lull where the halt risks are higher, do you still long it anyways? This created a mental dilemma in my head. Since I was so used to shorting small size during this time or just walking away for my #TraderNap, I wasn’t yet calibrated to go long anymore during these hours of the day, which is ironic because this was something that was automatic for me prior to the DGLT halt horror show.

Madaz longing? Of course Madaz is fucking longing! But now I’m all of a sudden feeling this invisible force field around the Buy button, what the hell is going on?! This is where the mistake occurred. If I’m too much of a pussy to hit the buy button, well let’s do the next best thing! Hit the short button, right? Uhhh….No! The correct move here clearly is to either a) grow a pair and long small such that if a halt were to occur, I wouldn’t feel like I’m incarcerated in Stock Alcatraz again or b) DO NOTHING. Simple as that. There was absolutely no reason to hit the short button. It was just a really bad habit that developed since I came back from trading and in many ways I needed this reality check.

I knew in the back of my mind this was really a better long than a short, I tried my best to only scalp the shorts in quick bursts but because the stock was moving so thin, I often missed the profit taking exits and got smoked the other way before I could react.  Thankfully, I did follow my sizing rules and never went more than 5K shares, due to the fact that I didn’t want to risk getting stuck in a halt with a large short position either due to high short interest risks. So that aspect of my new gameplan saved me from probably an even worse loss.

Since I think now after getting burned touching the ‘frontside short’ stove, I think I’ve regained the ability to comfortably LONG stocks now that are, you know, clearly LONGS?! Small size of course.

SOLUTION: STICK TO THE CORRECT BIAS AS INDICATED BY THE TECHNICALS OR IF NOT COMFORTABLE TRADING WITH THAT BIAS, THEN JUST SIMPLY DON’T TRADE IT!!

How does this apply to all of you guys? You gotta understand that there’s a lot of noise out there and little voices in our head that cloud our abilities to make a genuinely objective judgment when it comes to analyzing a stock. It could be something like fundamental analysis, PRs, tweets from popular traders. Stock XYZ has an ATM. All technicals indicate that it’s a long but I can’t bring myself to long a stock with an ATM or a stock that’s being bashed by AdamF or Citron therefore I must short it. See what I’m saying? It’s the same fallacy.

Hope you guys learned a thing or two.

-Madaz