Four (4) Market Types You NEED To Understand 🍏 Small Account Challenge Day 2 and Day 3 transcript

What's up everyone? Welcome to episode two of my brand new small account challenge of trading with $2,000. In today's episode, I'm going to give you a progress report of where the account stands in terms of growth as of today, day three. I'll give you a little sneak preview. So far, I've taken a total of seven trades. I want you to guess how many winners you think I've had. Well, I'll give it away. I've had seven winners, zero losers.

How is it done? I'll tell you what, guys. It's really simple. You find yourself a sweatshirt, a sweater, something like this, something really nice-looking. And you get two of them. You wear two of them. This becomes your lucky sweater. Now, wearing a lucky sweater, sky's the limit. Anything is possible. Because when you've got confidence, that's half the battle. Now, okay, I'm I'm joking around a little bit, but there is some truth to this because confidence, obviously, is going to help you make better decisions when it comes to trading.

Trading is a performance-based sport. Where does your confidence come from as a beginner? It comes from the track record that you've developed by trading first in a simulator. Once you've got that track record of profitability in a simulator, you know that you've got something that's working. So now when you flip the switch and you go live, you've already got some confidence coming to the table. That's what's going to separate you from all the other traders out there who throw real money into the market before they even know what the heck they're doing.

Now, in addition to giving you a progress report of where I stand as of day three, I'm going to walk you through the seven trades I've taken so far. We also have another very important topic to discuss. I've had a lot of people who've been coming to me since I began these challenges. The first one was about 10 days ago, and they've been saying, "Ross, I want to do a small account challenge also, but I don't know if this is the right time.

Maybe they need to gain more experience. They're not quite ready yet. The account's not set up." So they'll say, "Ross, how do I time when I should start because I don't want to start when the market's cold because I'm just setting myself up for failure." So what I'm going to do is I'm going to walk you through the four unique stages of each market cycle, from cold to warm to hot to exhausted and then back to cold. This is a cycle that repeats itself again and again and again.

So once you know how to identify those four stages, you'll know exactly where we sit here today. All right. So let's go ahead and jump on the screen share and start breaking it down. I'm going to begin with the overview, little progress report of where the account stands today. So for this leg of my small account challenge, I intended to have the balance at $2,000. I overshot it a little bit, took a little too much money out, so it's at 1,940 bucks.

For those of you guys who've been tuning in, I began these small account challenges, well, really back in 2016. I have a really big one that I did in 2017 that I'm very well known for. I did another one in 2019, 2021. I've been repeating them every year, every couple years. And so just this past month, I funded a new account with $2,000 and I set up with a goal of demonstrating for you exactly the strategy that I would use to grow the account.

Because there's no doubt that when you're trading in a big account, you trade with more risk. You're using bigger positions, but also the account gives you that cushion to take trades you might not take when you're in a tiny account. That was definitely true today. So number one was to demonstrate during these challenges how to trade in a small account. And then number two was to raise as much profit as I could, as much money as I could to donate to charity.

So 10 days ago, funded my first account with $2,000 and I grew the account over the course of six days to $58,000. I donated all of it to the Boston Children's Hospital and St. Jude's Children's Hospital. So I'm just thrilled to have been able to do that just this past week. On Monday, made those donations. And so after that, I reset the account back down to $1,940. However, during that first leg of the challenge, when I first funded the account with $2,000, I was using an a broker that gave me leverage.

So that means I had six times leverage, which meant I had $12,000 of buying power. So on day one, I bought a stock using the full $12,000 of buying power, and in that in that specific instance, I made about $3,000. So I was up on the $12,000 position an average of 25%, but all of a sudden, my account here is up 150%, right? 25 * 6. So some of you guys said, "Look, Ross, this is cool, but I'm not going to use leverage.

I'm a beginner trader. I don't feel comfortable doing it. Can you do a challenge without using leverage?" And I said, "For you guys, I'll do it." Now, this is not good for the children of the Children's Hospital because this is less money that we're raising, but I understand you guys want to see this, and so you were willing to throw the children under the bus, and I said, "If you insist." Again, I'm not happy about it, but look, we'll make it up with the next challenge.

During the next challenge, I'm going to pull the leverage back off the shelf. But for this challenge, no leverage. So that means starting with $2,000, just under 2,000, times one, that's how much buying power I have. So now that first trade, I used the full $2,000. The stock goes up 25%, let's just say for for the sake of argument, goes up 25%. I've got a nice winner, but my account's up 25%. It's not going to be up 150% cuz I'm not using the leverage.

So here we are, it's day now three. Oops, sorry. Three, and the account is up plus 45%. So there's no doubt that I'm trailing well behind where I was at as of day three um in the other account. So in uh the account where I was using six times leverage, I got myself up to, you know, $60,000 here by day six. So I was able to just rapidly compound those gains. You would think that if everything is the same, this challenge in the same period of time, I should make $10,000, right?

It's just divided by six, not using leverage. And yet, I think it's unlikely that's going to happen. And why is that? Well, this gets to the topic for today's episode, the difference between a hot market and a cold market. It just so happened that when I began that small account challenge 10 days ago, we were in the middle of the hottest of the hot part of the cycle. And then as uh towards the end of the challenge, the trend became exhausted, it cooled off, and so I actually began this new small account challenge on day one of a colder market.

Okay, so the growth is going to be a little bit colder. So now if we jump back up here, we're going to go over the trades from today, but we're going to do that um a little bit later in the episode. First, I want to talk about uh stage one. So stage one is we're in a cold market right now. Let's just like let's just get level set. Stage one is the market's cold. So what does a cold market look like? In a cold market, we have less volatility.

Things aren't really moving. Stocks that have news don't react that much. Buyers are scared. So we'll have a stock that'll come out with news, and nothing happens. Buyers are afraid to buy it. And so nothing pops up, nothing really moves at all, and nobody makes money. So during a really cold market, long bias traders don't make money cuz nothing's moving up. And short bias traders don't make money either because they're looking to short strength.

So nobody makes anything. All right, so how do we break this cycle? Chicken or the egg? What comes first? This is not good. The market's cold. So the way we break out of stage one cold market is with stage two, the spark. The spark is a surprise move. So what's going to happen is unexpectedly, a stock is going to pop up, but it does not fail. It just keeps going higher and higher and higher, and ends up making a huge move.

Now, long bias traders are always going to be surprised by this first stock. We're not going to see it coming. We're going to have been in a market which may have lasted for days, but possibly weeks, that was cold. Not much was happening. We were showing up every day, but we just weren't seeing anything really opening up. So when this stock popped up on the scanner, we didn't think much of it. Next thing you know, it doesn't reverse.

It keeps going higher. So the short sellers who were looking and hoping for anything to pop up to short it as it comes back down have gotten a short position, and the stock is continuing to go higher. So now they're getting forced to cover, and it goes higher and higher and higher. Now, buyers feel FOMO because they missed the first big move. It's been cold for days or weeks, finally something moves, and of course, I miss it.

So what do we do? We analyze that move, and we try to try to draw conclusions and patterns about what will be the next stock to squeeze up. So let's say for example, we've got this stock that ends up making, you know, a huge move. It goes from $2 a share and just kind of starts creeping higher and higher, and then it starts to pull back. It looks like, "Okay, it's over." And then next thing you know, it rallies way back up, and it goes even higher, and next thing you know, you've got a stock up, you know, 3,000% in a single day.

And we've seen it happen before. So now, you better believe we're going to be asking all the questions about what was this company, what is the sector, where is it located, what is the float, what was the price, everything we can figure out about this. We're going to start marking down these as data points. And what we're going to be doing is creating a profile. This is the profile of our recent big move. So now that we have this profile in hand, what are we going to do with it?

Well, we're going to begin searching the market in real time for stocks that resemble that profile. We're going to use scanners to find those. So what's going to happen is all these traders are now sitting using scanners, searching for stocks that have similar characteristics, similar price, similar float, similar market cap, similar sector, everything is has to be very similar. And then when we see a stock that pops up on our scanners and looks similar, you better believe we're jumping in it and we're looking to ride that momentum.

So look at this one. From $14 to 40 bucks in one day, right? That's what we're looking for. So this happens and now all of a sudden traders are now in this mindset of not wanting to miss the next one. So breaking out of a cold market, we require a spark. We require a surprise move. It's generally a stock that just has genuinely good news. It's a good catalyst. Sometimes it's a stock that short sellers just got too heavy on and the stock pushed higher, but usually what really is pushing the stock higher is a strong news catalyst.

So stage three So this is an example of another surprise move. A stock going from $4 to $34. This is a surprise move. And shorts are caught off guard and longs miss it. And so then stage three is where we now have sustained momentum. So additional stocks that fit the profile of the recent big move now are holding up. Traders are not wanting to miss it, so they jump in early. Shorts are cautious. They're They don't want to get run over again.

So what does this create? More buying and less selling. So now all of a sudden the supply demand imbalance has shifted. Now demand is created by buying volume, right? No question about it. However, on the supply side, supply is created by the float, but it's also created by people that are just unloading shares and selling. So they offset demand. Now typically demand in a strong stock will be will far exceed the supply and that's when we end up seeing these 200 300% moves.

So stage three is where we get into this really hot cycle. Now I can show you an example of this right here. So this period here was a cold market. And this lasted for almost almost a month. It's like three weeks where the market was cold. I sustained a few bigger red days. It wasn't so fun. I eventually decided to batten down the hatches. I was like, all right, look, this is about survival. I just want to not get beaten up anymore.

So what do I do? I'm going to bring down my share size. I'm going to reduce my positions. I'm just going to bring everything down. And so would that have been a good time to be trading a small account? Not really because we weren't getting big moves. When you're trading in a small account, you want big moves because you know, you're never going to capture the full move even if you only capture maybe a quarter of it. Well, a quarter of nothing is still nothing.

So a quarter of a you know, 50% move, well, then you've still got something to work with there. So you really do want those bigger moves when your account is smaller. And then you could see here all of a sudden we had the spark right there and then a couple big green days and now all of a sudden momentum's picking back up. Confidence is coming back in. I'm being more aggressive. We had similar thing kind of back here where it was a little colder and then it really heated up and then it cooled off, heated up, cooled off a little bit and heated up.

And the cycles were were happening really quickly. So sometimes they're a little bit longer and sometimes they're a little bit tighter together. However, these hot cycles don't remain in stage three forever. Eventually we move on to stage four. And stay Oh, and by the way, here's a couple examples of like hot market stage three. So stage three can last for a while and you can do really well during a like really hot market.

So this is the phase where in one day $230,000, right? Stock goes from two bucks to $8. And I'm trading it with bigger size because now I know that there's a pattern. Anytime a stock meets this profile, has this catalyst, it goes up 300%. So you start, you know, putting more money behind each of the trades. There's another day $335,000 of profit. This obviously is not with my small account, it's with my big account. $278,000 of profit.

These are huge moves. But then the theme gets exhausted. And that's what we saw this week. Towards the end of the theme, weaker companies will try to capitalize on the hype around this headline by putting out similar headlines. Similar headlines, but they lack the substance behind them. And so these are companies that are really trying to get attention for their stock and as soon as the stock pops up, those companies on the inside are actually dumping shares.

And so they're contributing to short selling. It's not just shorts that are selling, it's the actual company that's selling shares. It's It's very I mean, it's really aggressive, but they're trying to capitalize on this hype. And so what's the result? The stock pops up and then comes all the way back down and you have some really dramatic moves. Long bias traders were jumping in thinking here we go, we've got the next catalyst and the whole time the company is selling, selling, selling, selling.

And then long traders bail out, shorts get in and you end up having a stock that goes, you know, up 200% and then all the way back down very quickly. So shorts now become more aggressive. Longs get nervous, they become more conservative and the imbalance of supply and demand has now shifted back to the sell side. And this is the beginning of a cold market. So the theme is getting exhausted. We're seeing these huge reversals, huge rejections.

And the next thing you know, you know, you start to look at charts kind of like this and it's not pretty. And this is what happened on Monday. Now I made money on this. I made money trading the front side of the move, but then it ended up rolling over and giving back all of the gains. And when I saw that, I realized this is going to be a problem. Now there's another example from uh last month, CWD. This is a stock that kind of spelled the end of um that that hot cycle uh that previous hot cycle.

So we had the stock that made this huge move, but look, it gave the whole thing back. I mean, it was just like the the amount of selling was unbelievable. And so that, you know, really casts a shadow on momentum and it leaves traders feeling like I can't trust these setups. And then that's where back to stage one, cold market. So when you get to a point where every other company is putting out the same headline, they pop up, they fade, they pop up, they fade and eventually they stop popping up because long bias traders are like, all right, I've gotten my hand slammed in the door enough times, I'm not going to do it.

I'm not touching it. And shorts get really comfortable. Everything that pops up, they short it, they short it, they short it, comes back down. Until the surprise move, right? And the cycle starts over. One pops up, they think, oh, it's going to come back down and then it keeps going higher and next thing you know, it's up 200 300 400%. Something about the underlying dynamics of that particular stock allowed it to make a big move and suddenly we're at the beginning of the new cycle.

So first of all, don't feel bad if you miss that first move. We usually do. Usually it's unexpected. If you trade it, you totally under capitalize on it, but, you know, that's the way it is. We were in a market where we had to be more conservative. So if you're sitting down right now, as of today, the market is in a cold cycle. So we were in a very hot cycle and it really ended on Monday. So Tuesday was cold, Wednesday was colder, Thursday was colder and today was colder yet again.

Now, in spite of that, Wednesday, Thursday, Friday, these three days were my first three days of this new small account challenge. And guess what? I was green all three days. But if we compare the progress that I made during the first challenge to the progress in this second challenge, well, it's not just that I'm using no leverage, we also have the condition of the overall market, which is a big variable. So on day one, I locked up 23% return on the account.

I took three trades. I had three winners. Uh two of them were decent size and one of them was like a $20 winner, but nonetheless, I had three trades, three winners, $454, account's up 23% on day one. Now that's not Look, I mean, it's not bad. I shouldn't, you know, I shouldn't beat myself up for that. Um however, I will just a little bit because if I pull up my scan or my slides here, this was day one in uh the last round of the small account challenge when I was using leverage.

Okay, so we'll think about that though. Well, 4 * 6 2400 2800. So actually if I had used six times leverage on all of those trades, I probably would have been closer to that $3,000 mark. So day one, maybe day one and day one were kind of equal, perhaps. Well, what about day two? All right, so day two of this small account challenge, I made yesterday $61.20. And I was like, I only took one trade. I had one entry and one exit.

And if we pull up the chart on that stock, you'll see that it wasn't that exciting. The stock hit the scanner, it was popping up and I was like, okay, here we go. I think I can work with this and it didn't hold up. So I'm going to back this chart up right here. You're going to see right in this moment. Look at this move. This is kind of It's kind of unbelievable, too. So we got this pop right here. Pops up, has news, it pulls back and I bought this dip right here and it rips up right there.

The only problem was I couldn't buy very many shares because, well, I'm not using leverage. And in total, this wasn't just It just wasn't a very big winner in terms of cents per share. So I think I ended up making about 30 cents a share on that trade, uh which was good, but, you know, as it turned out, it only amounted to about $60. So it was a smaller win. But we compare that with day two of the previous challenge and I was up 5900 bucks.

So that is a stark contrast. Well, on that day, we had a stock that exploded. It went straight up. I was able to buy 5,000 shares of it using six times leverage and it went up a full dollar a share. Wow. So, with this trade on STSS, I was able to afford at $8 a share, I was able to afford about it it wasn't even it was about it was about it was about 250 shares. So, about 250 shares, it went up about 25-30 cents. And and that was it.

That was all I could get. Now, I could have taken more trades. With this account, I do have settlement, so I can trade instantly. I can day trade as much as I want, but I didn't see anything that looked good. And here's one of the things that I learned. So, about a year and a half ago, I made this discovery in my trading that on my red days, my accuracy was 45%, which is really pretty bad. I mean, obviously you could see my accuracy during these challenges have been right around 90%, which is fantastic.

But, I've been very picky about what I've been willing to trade. So, on a typical day over the course of the last year, my accuracy has been 72%. But, on losing days, just losing days, a year and a half ago before I made this change, my accuracy was 45%. And so, I said to myself, if if there was a way I could know that today is going to be a red day sooner, I would walk away. If you could call me in the morning and say, "Ross, it's going to be a red day." I would go back to sleep, right?

So, I asked myself, what are the earliest symptoms that today is going to be a red day? And I realized that one of the first ones is the result of my first trade. Because in a hot market, that first trade, big winner, and all of a sudden, I'm in the driver's seat, I've got the confidence, I'm feeling good. In a colder market, that first trade is a small winner. And in a poor market, that first trade is a loser. So, on the first trade, usually I want to go in with smaller size, just to kind of test the water and see how it feels.

So, as it turned out, on this first trade, I only got a small winner, I didn't have a lot of confidence, and so I said, "You know what? It's better not to push it. I'm at the beginning of the small account challenge, the market's cold right now. Today's not the day to dig deep. Today's the day to batten the hatches and just survive." So, I survived to day three. So, today here is day three, and I have a total of three trades from this morning.

Locked up $375.13. It's a 15% gain. Again, this is good. Is it phenomenal? It's I mean, again, you know, I'm being a little hard on myself, but if we look back at day three of my previous challenge, I was at 68% another $7,500. So, again, I was using leverage, we were having stocks that were making huge moves. So, today we had a couple of decent moves, SMX and ASTC. Now, you know what's interesting is today, I traded these stocks in my main account as well.

I tried to. It's it's difficult to trade in two accounts at the same time. For me, I I don't like missing opportunities, and if I see something that really looks good, I want to try to capitalize on it the best I can. So, that means I have to trade in both accounts. On SMX, I was red in my main account, but I was green in my small account. On ASTC, I was green in in both, and I was green quite a bit more in my big account.

It just ended up I was I took a bigger position on it, and just kind of worked out a little bit better. But, what's interesting here is this is 10 times the profit, right? Well, 10x trading with bigger positions, that kind of makes sense. All right, so these are the trades that I took here today, just as an example. So, ASTC, this stock surprised me. It popped up this morning with news, and then it immediately reversed back down.

So, this was the pop right here. So, we got this pop, and then it comes all the way back down, and I thought, "Well, that's cold market for you. I'm not jumping in it. I'm not touching it. No way, Jose." So, pops up, comes all the way back down, then goes sideways. And then all of a sudden, really out of nowhere, at the open, it rips up here from $6.20 all the way up to eight bucks. So, how did I trade this? Well, when this first started to pull away right here, it popped up, as you can see here, to 680.

And so, that actually gave a micro pullback, because it tapped with that upper candle wick. I'll zoom in a little more on this. That's the upper candle wick, and then it dips down, and then it curls back up. That's the first pullback. This is the second pullback. So, now there's opportunities right here and right here. It goes sideways, and this was very interesting, this pop and this one here. So, it started to do these big candle wicks, and basically, as soon as that started happening, I was like, "I don't think I'm going to be able to trust this anymore." So, even though this ended up squeezing, let's see, the peak was $8, my my biggest trades were right here, right at the very beginning.

Basically, right out of the gates, trading the front side of the move when it was moving quickly. So, that was ASTC, trading it got two trades on that in my small account. SMX, I got just one trade on. This one had news this morning. It's a relatively low float stock. The daily chart I thought looked okay for a turnaround story, curling back up. Um but again, we're in a little bit of a colder market, I wasn't sure it was going to work, but all of a sudden, coming towards the open, this started to pull away right here.

So, how did I even find this stock? Well, I found it on my scans. So, this morning, I scrolled back here, it was at about let's see what time was it? 9:15. Yeah, 9:15, we're going to go back, and all of a sudden, we're going to see SMX hit the scanner. And as soon as it hit the scanner, I pulled it up, and I said, "Okay, you know what? This thing is moving, I'm going to jump in." So, I got in right there after it hit the scanner at about $1.86.

Goes up to a high of 215, but here's the thing with this trade on SMX, it's cheaper. I was able to buy 1,144 shares. I got filled at 185, I was able to sell at at 201. That's $228 of profit. So, this is on the cheaper side. Now, there was a higher price stock today that made that big move. Um it was EPSM, and this for me was not safe in the small account. It was too expensive, the spreads were too big, I couldn't trust it.

And even in my big account, I didn't feel like I could trust it. Now, if this becomes a theme, and we see more of this, it's something I'll pay attention to, but usually the theme isn't higher price stocks, because most retail traders just avoid them. So, as we sit right here, it's still relatively cold. Yes, there were some opportunities over the last three days, but the market's been cooler. What we really need is that next big surprise move to help us understand what the new profile is going to be for really hot stocks.

Now, if you guys have not already checked out my full-length masterclass on the small account growth strategy, I'm going to put a link to that at the end of today's episode. I'm also going to put a link in the description and in the top comment where you guys can do a two-week trial. During that trial, you can watch over my shoulder as I'm growing this account. So, this challenge right now, I'm going to do six days. Six days, leverage taken away.

So, it's just trading with no leverage, just the cash amount, margin I can trade as much as I want, but no leverage. At the end of six days, well, we're going to do a different challenge. So, I've already kind of got an idea what I'm going to do. I'm going to pull leverage back off the shelf, but what I'm going to do is a super small account, I'm going to make it like really tiny. So, that's going to be the next challenge.

And as always, all of this profit is going to get donated to charity. So, thank you guys as always for tuning in. I hope you hit the thumbs up. I hope you're subscribed to the channel, and make sure you check out check out these episodes here if you want to learn more about the small account strategy.