Casino Stocks

Lot of people playing around with cheap ugly beat-up nasty stocks lately.  We call these “casino-stocks” and you better treat them like that.  A lot of the iBC entourage have been hitting home runs in some of these plays, but just remember they are ahead of the game of most traders, and so I can say with confidence they know how to get in and out of these plays with precision.  This is just a note for those who are NEW to playing these super fast moving micro-caps.

• Position Size = small  …you see a stock rise 30%, then another 20%, you are now losing control so you jump in.  Okay, fine we’ll play with momentum strategies.  However, always remember just as fast a stock moves up, they will likely move down just as fast.  You do not want to go more than 1/2 of what you’re used to investing in normal sized cap stocks. 
• Timing= quick, very quick, more quick than you are used to …Remember, momentum traders build position as momentum increases.  That means, no “hindsight” trading, just keep building position at a comfortable pace.  Volume will come in “waves” in these junk-stock-squeezes.  Finding an exit point is even more critical.  Some of these stocks can be up 15% intraday, then close down -10%.  Sheesh.
• Effectiveness= low  … playing fast short squeezes and momentum on micro-caps (or worse, penny stocks… NASTY) is certainly a type of trade, but their occurrence is very rare and thus is not a strategy you want to specialize in, especially if you’re new to trading.  Find balance in your portfolio, like using only 1/5 or 1/10 for higher risk plays… for example, Alphadawg doesn’t play any of these stocks and yet he is destroying the S&P with normal plays.  Although I am totally for finding rare short-squeezes in beat down sectors, I am highly against penny-stocks, I loathe them with a passion.  I find people who buy tiny-cap stocks under a buck are easily manipulated, are in for the cheap and quick thrill, and have sad sex lives.  Please don’t ask any of us about a penny-stock.
• How to Play = putting all the above together, to sum up these trades, you have to be very patient in your entry point and quick in your exits.  Keep position size relatively low and EXPECT to lose on them.  I like going into a high risk trade with that low expectation because it keeps your emotions in control, for example, when I play options on earnings plays I write the whole thing as a loss before the market opens.  Remember if you are young, then the most effective way to be a trader is to stay in the game so don’t lose that competitive advantage you have over other traders. 

Nevertheless, I am not against people swinging for home-runs every now and then.  Right now we have some epic squeezes going on, but please please please know you’re exit strategy.  Don’t just jump in because someone else did.   It’s all about experience here.  I think you watch guys on iBC like CA, RC and Danny swing for stocks like CAR, XTXI, FTK and it’s spectacular.  But they know how to play with the fire without getting burned. 

Congrats to all who have been banking coin on these plays (there’s a number of you on The PPT), just keep things in perspective.  All these stocks will be hit, and they will be hit hard.  Until then, keep milking it.

… just a friendly reminder from your iBC neighborhood watch.