It's All About Your Profit/Loss Ratio!! transcript

What's up everyone? Welcome to day 16 of my small account challenge of growing a $2,000 account using Charles Schwab as my broker. Today was nearly a red day. I took two trades, accuracy 50%, one winner, one loser. All right, but here's the good news. Because I had a positive profit to loss ratio, I'm able to finish the day in the green. Your profit to loss ratio is the comparison of your average winners versus your average losers.

So, as long as you win more on average than you lose, then even at 50% accuracy, you're a profitable trader. That is how you set the bar low and make it easier to achieve profitability. However, what happens for a lot of beginner traders is that they don't cut their losers quickly the way I typically do. They end up holding them and hoping it turns around, maybe even adding to the loser. And then what ends up happening is when you finally stop out, your average losers are big.

Your average winners, well, you take your profit kind of quickly cuz you want to lock it up, are small. And now you've got an inverted profit to loss ratio, which means you need to be right greater than 50% just to break even. And now, without knowing it, you've set the bar higher and higher and higher to achieve profitability. Your profit to loss ratio is one of the most important metrics. Yes, accuracy is important, and of course we all strive to have high levels of accuracy where you're right more than you're wrong.

But at the end of the day, even a trader with low accuracy can be profitable if you've got a positive profit to loss ratio. So, let's go ahead and jump on the screen share and start breaking down today's trades. All right, so it is day 16 and as a reminder, all of the profits from these small account challenges gets donated to charity. You guys have the opportunity to help me increase that donation because I add an extra dollar every time you hit the thumbs up on the episodes in this series.

We're now at over $353,000 of money raised, and this is part of the 50 state children's hospital goal, a goal of donating money to a children's hospital in every state here in the United States. So, we've done pretty well so far. I think we're at 28 or 29 hospitals, but we're not finished. We've got more to do. So, we'll keep up with that. Thank you guys for the thumbs up. Today, day 16, we had nothing obvious yet. Now, we did have a stock that was up 98% as you can see right here, CRNX, but it's $83 a share and it's a 100 million share flow.

Now, you might be curious at how a stock is able to go up that much you know, with a float that high and with a price that high. So, if I back this up here and just go full screen, you're going to notice something interesting about the chart. Whoa, what kind of chart is that? So, all of a sudden it's trading right sideways here at like $83.50 a share. That's because the company has been bought out. They've been acquired.

Now, I didn't actually look at the the headline of the the exact buyout price. The buyout price is almost certainly a little bit higher. Um let's see, $10 billion. All right, well, what does that equal per share? Um $85 a share. So, you may wonder, well, wait a second. If they were bought Now, number one, if they were bought out by by Vertex um Vertex Pharmaceuticals at $85 a share, why isn't it trading at exactly $85 a share?

And so, the issue here is that if you bought it right now at $83.50 a share and the buyout goes through, you will receive $85 a share at the time of the buyout, which is $1.50 a share of profit per share. That's great. 10,000 shares would be $15,000, right? That seems like a no-brainer. But, the market is pricing in a little bit of risk. There is some risk that the deal doesn't go through. Could be, you know, regulator, antitrust, monopoly stuff.

Could be during due diligence, whatever, whatever, something happens, the deal doesn't go through. If the deal does not go through, where's the price going? All the way back down here to $41 a share. So, with a 10,000 share position, your $15,000 of profit is against like $400,000 of risk. It's not a good profit-to-loss ratio. Now, there will be some people that may take the trade. They may use options to hedge against the risk of it going down by buying puts, but all said and done, it's really not a great risk-to-reward ratio.

And so, it doesn't trade at exactly the buyout price, but it trades darn close to it. And so, there's no real opportunity to trade that at this point because the value of the company has been really effectively determined by this buyout. So, CRNX was our leading gapper, but that's a no-go because the price, the float, and it's not going to move in price because it's a buyout. The next one down was TDTH. Now, it's $2.86, 2 million share float.

All of that is fine, so we'll take a peek at that chart really quickly. So, TDTH, TDTH right here. This one, as you can see, made a move that started in after hours and then double tops pre-market and starts to come back down. So, when I'm sitting down, which is at about 7:00 a.m., it's right about here. This had already peaked. So, unfortunately, I missed the move. It was early and mostly after hours. So, that one was out of play.

Then the next one we had was TNMG. Well, you can see from that, it's a little too cheap for me. My minimum cutoff is generally around $2 a share. Then we've got SUGP here at $1.13, little cheap. BJDX, $1.40. TDIC, that's the next one that's at a price that we could maybe consider. So, let's see. Let me just grab this, drag it back up. TDIC, unfortunately, you'll see here again a big pop at like 4:00 a.m. and then it's been unwinding and coming back down.

So, kind of a bummer. So, we didn't have anything that was obvious. And on the one hand, that's disappointing. And on the other hand, it's actually okay because it means that as soon as something pops up it looks good, it gets front and center spotlight. So, everyone pays attention to it. And today, we had Silo. Silo pops up and immediately starts squeezing. It goes from 7:30 to 8:30 to 9:00 all the way up to 9:50. So, as it starts moving up the scans, I'm looking at Silo and I'm thinking, all right, this is one that's worth taking a stab on.

It's a relatively low float here with very high relative volume started to peak up or perk up right there. It had breaking news right here that tied in AI and Nvidia. However, >> [sighs] >> the Nvidia developer program, I'm not sure how substantial this news is. It's not like a partnership with Nvidia corporate, you know, it's just enrolling and using one of their tools. But nonetheless, that was a catalyst. So, the stock starts to pop up here.

It pulls back, it pops up again, it dips down, and I punch my order right here looking for the break through nine. We got the break of nine, we got all the way up to 9:50, and I took the profit. It ends up selling off right here, then it comes back up, looks like it's going to break VWAP, and it rejects, and then that kind of spelled the end of the day for this. It didn't continue higher in spite of that news headline, which was a little disappointing.

So, total profits on one trade, entry at 8:81 looking for the break of nine, exit at 9:03 after it hit 9:50 but wasn't able to go higher, and I locked up about $476 of profit. Okay, not bad. And then we had trade two. And that was on CLRO. Now, arguably, CLRO actually is held up far better than um than the first trade, but was not easier to trade for me. So, we'll look at the chart on this one. CLRO pops up, pulls back, it pops up, and I uh took my starter here and I filled 36 shares.

Uh, it's so disappointing when that happens. I was looking for the break through 8:50, it ends up going up to nine, but I only got a partial fill. It dips down, I don't sell, I add to the position here, it comes back up, it double tops, and then flushes, and right here I end up stopping out. And so I lost I was $259 on it. All right, but at the end of the day I'm sitting up $216 and 80 cents. 50% accuracy, but the winners are bigger than the losers.

And so right now my accuracy has declined to about 76% on this challenge. 39 trades in total with 30 winners and nine losers. The account is up 930% from the original starting balance of 2,000, that's $18,605 of profit. So I'm doing well in all regards, but today was definitely a small green day. Thank goodness I cut my losses. Now, um although on the other hand you could you could argue that had I just held CLRO, uh maybe I would have been better off for it because it did end up squeezing all the way to a high of $10 a share.

So that's a little bit annoying. It sort of had this first pop, it rejected, and then it ends up rallying. Now because this is a day trading account, I certainly could have gotten back in. So this was the rejection right here, then it kind of goes sideways, it ends up curling back up, tries, it rejects, tries, rejects, then it kind of pulls away, and then it kind of finally got a move higher. I ended up trading in my main account, we'll talk about that in my main account recap later, but then you get a double top here, a rejection, and and it really was not easy to trade either in the big account or the small account.

The stock was difficult. And so at the end of the day, I did the right thing by cutting the loss and jumping out, and you know, look, survival. I'll survive and live to trade another day. So whether this goes to 10, 11, 12 dollars or higher, without me, it doesn't really matter. Taking a small loss makes it less emotional to see what it does later. It's if you take a big loss and you get smoked that what it does later starts to matter more.

So, that means first and foremost, your job is to manage your risk. Be a hunter of volatility and a manager of risk. That's the name of the game as a trader. So, I remind you guys as always that my results are not typical and trading is risky. Have you not already checked out a 2-week trial? You can come on over and check it out here at Warrior Trading. We also have right now our 4th of July sales going on, but they end tonight.

So, if you want to check out the 4th of July sale on our Warrior Starter and Warrior Pro membership, you're welcome to do that. You can click the join now button and you'll see our memberships right here. Or you can check out the 2-week trial as always and join us for 2 weeks for 20 bucks and see what it's like to be a member of the community. When you do the trial or you become a member, you'll have access to these classes.

Now, trial members only get access to the first six chapters. So, pro members get access to everything. And uh you get access to the software that I'm using every single day for trading, for scanning, for looking for breaking news, and of course, for the chat room. So, thank you guys as always for tuning in. Thank you for hitting the thumbs up on day 16 of this challenge, and I'll be back at it bright and early tomorrow morning for day 17.