How Much Risk Should I Take? transcript

What's up everyone? Welcome to today's daily market recap. In today's episode, I'm going to answer a question that was posed to me in the chat room this morning, and I think you'll find the answer very interesting. We're also going to talk about our leading gainer today, a stock that went up over 70%, which kind of threw me off a little bit, and I'm going to break down for you the chart, what I liked about it, but the things that I didn't like, the things that gave me pause.

The market is still a bit cooler, but at least we had this stock that put in a pretty substantial move today. I'll put it up on the chart so you can just take a quick peek at it. There it is. So, now the question that was asked of me this morning in the chat room, I had a member who said, "Ross, I'm having a hard time understanding how to take risk when a stock first pops up on the scanner. How do you decide when to take a lot of risk or when to take just a little bit of risk?" So, let's jump on the scanner and kind of look at that.

So, as you guys know, or probably many of you know who have been tuning in here on YouTube for a long time, these are the scanners that I use to find stocks that are moving. So, this essentially is like my market radar, searching and scanning the entire market, but it's using a set of filters to look for the type of stocks that I tend to make good money on. So, if you've watched me trading live, you'll probably have seen times where a stock will hit that scanner and within perhaps seconds I'm in 20,000 shares.

And minutes later, the stock's up $2, three $3 a share and I'm up 40, 50, $60,000. And then there are other times a stock hits a scanner and I don't do anything. I don't buy. So, how do we decide when to buy, when not to buy, and how much risk to take on any given trade? This all comes back to the concepts of stock selection that of course I teach in my full length warrior proc curriculum. But I'm going to give you a tidbit of that today.

So as part of stock selection, I focus on five primary pillars, five primary criteria to help me understand whether or not a stock is worth trading. So if we jump onto the whiteboard here, I'm going to break these down for you uh in today's episode. All right, so we're going to label this here. So, stock selection and we're going to use of course green because that's a good luck color and that's why I'm wearing green today.

Bring out the green from the market. So, let's see stock selection. The first criteria is going to be price. Now, we can see here that the scanner is returning stocks of sometimes higher prices. I have a couple of scans like squeezing up 10% in 10 minutes. This scan will search any price range because in my opinion, if something is moving up 10% in the last 10 minutes, it's worth taking a peek at, even if it is a little more expensive, but the first criteria is price.

So, we're going to put in price right here. Uh, actually, let's just move this over a smidge. All right. So, I'm going to do price. Um, I'm going to put it right here. Okay. So, price. And what's my preferred price range? Generally, I like between 2 and 20. And within this window, the area where I tend to make the most money is between five and 10. So that's kind of the sweet spot right there. Now, if we look at my profitability by price, what you would see is that I don't make a lot on lowerric stocks and then I make a lot between 5 and 10 and then it kind of goes down like this with the exception of like GameStop that pops up right there.

And we were just looking at GameStop today because that one stock contributes um I guess it's about I think it's one and a half% of my total all-time profit. Um which is not nothing. I mean there's thousands of stocks in the market. So to have one stock to represent even more than 1% of my total gains is pretty substantial. Anyway, so5 to$10 is sort of the preferred sweet spot. Then we have um percentage up uh today.

And for me the stock really at a minimum should be up 25%. I mean you know in a hot market 25% is not going to cut it but 25% and I prefer that it's one of the top three gainers on the day. Okay. So typically the top gainer as we see today uh is up well over 25%. RNBL ATNF 60 67%. In hotter markets, we routinely see stocks that are up 80%, 100, 200, even higher. But right now, it's a little cooler. Um, so then we have RV, which stands for relative volume.

And I like to see that it's at least above five and higher is always better. There's no such thing as too high. So, the relative volume on ATNF right now is 35, which is good. The relative volume on RMBL is 5,000. This one down here is 500. So you can see some of them are substantially higher, but below five is really not going to be something I would consider trading. Okay. So then our fourth pillar is that ideally we have news um or catalyst of some type.

Now the catalyst can be uh not specific to the stock. It could be that um it's sectorwide and so that can work but a stock specific catalyst is good. So um you know this is basically yes or no. It either has it or it doesn't. And then float is the number of shares available to trade. And I generally would prefer under oops. So under sorry what am I doing? Um under 20 million and lower is better. So the lower the better there.

So, and again with this, there's not really such a thing as too low because you don't really get floats that are outrageously low anyways. Okay. So, now let me play out for you two scenarios and I'll let you um decide. So, we've got two stocks at the scanner. So, stock number one, we'll go stock number one. A right up here. Okay. Let's stock number one. All right. So, the price is $21. It's just above the low threshold.

Okay. How much is it up today? It's up 26%. Just above the threshold. Relative volume is 5.5. So, again, just above the threshold. News, let's say it has it. And float, let's say, is 19 million shares. So, if this stock hit the scanner, how would I feel? Well, generally I would look at this stock hitting the scanners and I would think to myself it technically is within my five pillars of stock selection, but it's right on the cusp that it sort of barely meets it.

Now, equally, a stock that was $20, um, you know, anything that's at the edges of the price range become more risky. Lower price stocks for me tend to be more grinders. They don't give me the big breakouts I look for. And then higher price stocks have bigger spreads which creates more risk for big losses. So that sweet spot of 5 to 10 is very important. Now a stock that's up 100% or higher that's fine as long as it's one of the top three gainers.

Higher relative volume is fine. If it was lower you know not so great. So anyways I would look at this and I would say you know I'm not sure. So now we've got one sort of variable here. Um, so and I'm going to just put another here which is market strength. So how strong is the market right now? And you know it basically goes between uh cold and hot, right? Well, I mean, of course, it's a spectrum, but you know, cold or hot.

And so even in a hot market, I would look at this stock here and I would probably not be very interested. The combination of low price and high float is going to most likely lead this stock to be a grinder. The reason is you've got so many shares available to trade and the price is low that people are going to be buying and selling in such large blocks. It's going to be very crowded and it's not going to move very quickly typically.

Now, if we had this same stock and the float was only 1.9 million shares, that changes things dramatically. It really does. Reducing the float by 10 uh, you know, a ratio of 10, making it onetenth of what it was before really does change certainly the supply side, which means you actually would only need similarly onetenth of the volume to give you that kind of move, right? Because let's think about this, it's all about supply and demand.

So if we have a supply level of 20 million shares right here. So we've got 20 million sorry 20 million shares of supply. Then let's say we need we have 20 million shares of demand. What is that going to be? This is going to be volume and this is um float shares. So float. So let's just say in this scenario what's the rate of change? So rate of change, let's say, is it goes up, you know, 10%. Well, if it had 200 million shares of volume, it would probably go up 100%.

But 200 million shares of volume is a lot of volume. Alternatively, if it had a uh 2 million share float with 20 million shares of volume, it might go up 100%. Because of the ratio and the imbalance between the supply and the demand. So, this is something we pay really close attention to and it's not unthinkable for a stock to have 20 million shares of volume. We see that all the time. ATNF right now has 68 million shares of volume.

So, in this scenario here, if the stock has a lower float, it's going to have a higher likelihood of being able to achieve these big percentage gains when that volume comes in. If it's got a higher float at the beginning, then it's going to need an incredible amount of volume to get the big percentage gain. And although it could happen in a hot market, it it likely won't. And and and so you end up that stock that traders end up focusing on other stocks.

So the float makes a huge difference. So the combination of float and price. So in number one, I look at this and would I take a lot of risk on it? Probably not. And I probably wouldn't even trade it at all. Now stock number two, this one hits and is at $5 a share. Right within the sweet spot. It's up. I mean, honestly, even if this was up only 26% and still was 5.5, but was yes and had a 1.9 million share float, I would definitely trade it.

If the float was 19 million shares, I would hesitate. So, the float again here is a very big um is a very big one. But 1.9 million shares and then let's just say it's up 75% and the relative volume is, you know, 20. This now is a stock that I would take some more risk on. Certainly in a hot market, but even in a colder market. So in a colder market, the type of stocks that I'm more inclined to focus on are going to be different.

So let's just kind of do a little um kind of a little chart here. So this is going to be float. Oops. Float. So, we've got float of 1 million shares here all the way up to 20 million shares. Okay. So, and then we've got um well, let's let's just kind of work with float. So, what I would say is that in a hot market, and I'm gonna use let's see which color should I use for hot market? Well, I guess we'll just use green.

That's fine. So in a hot market, I'm going to trade I'm going to trade everything a bit more and I'll be willing to trade slightly higher float stocks. So my distribution of trades is probably going to look more like this in terms of the number of trades I'm taking and up to this float. So well, let's just say it probably comes down a little bit faster. So let's just say it comes down, you know, kind of like this. So this is distribution of trades, total number of trades.

That's a hot market. In a colder market, I'm going to probably be more like this. So, I'm going to trade less in total. And I'm going to draw my cut off a little bit earlier at maybe 5 million shares because what I know is that in a colder market, these ones are are not likely to do well. In fact, the only ones that have a chance of doing something exciting will be the lower float stocks because that low level of supply is what gives the opportunity that if demand comes in, it can squeeze.

So, fewer trades and tightened up here against the lower float stocks, the ones that have the higher likelihood of moving. So, again, in a hot market, I'll take a little bit more risk. I'll trade everything a little bit more and I'll trade a little bit higher float, but in a cold market, I'm going to tighten that back up. So this morning when I sit down, what am I looking at? I'm looking at the leading gainers and I'm trying to do that evaluation of what do we have that's moving?

And so when I first pulled up my scanners at about 5:30, 6 this morning just on my phone just to take a look at it. Um, now this is one of the things that's nice about this software that we've got here. You can pull these scanners up on your phone. So, if you haven't already done a two-eek trial of Day Trade Dash, including access to my broadcast in our chat room, I highly recommend it. It's $20. It'll give you a chance to really see what it's like to be part of this community.

So, I checked the scans on my phone and our leading gainers were nothing I would trade. Wow. Wow. Someone said, "Ross, what's up with the WOW chart? This is weird. It's just going sideways." You're right. And it's always a good idea to check the news catalyst. In this case, you look at the news catalyst and the first thing you see are all these law firms investigating du what in the world is going on? Well, unfortunately, there's a lot of ambulance chasing attorneys that anytime a company receives a buyout offer and accepts it, which this company has.

It's been bought out. Uh that is the news headline. these companies uh these law firms will try to um start like minority shareholder um lawsuits against the company and it's really just ambulance chasing. They're just trying to get a little bit of money from people and it's it's kind of a whole I don't know it's a very it's a gross industry. But in any case, um that's what those headlines are about. But the reason this is up this much is because of a buyout.

So, that one's not going to work even if we wanted to trade it because it's the value is now fixed at $5 a share. JVO 200 million share float and below $2. HBI $6. I like the price. I don't like the float and the float is going to definitely say that's a no-go. Uh Rumble, um this one didn't start moving till the open, so it wasn't on the scans earlier. XFOR, this was the first stock that hit my scanners this morning.

So, how did I evaluate it? Well, based on our five criteria, number one, the price is a little cheap at just under $2. The float, which is a little further down on the list, is five million shares. So, kind of right at the cutoff. It did have a news headline. The relative volume is 159, but what really stopped me from trading this was the lower price. I just thought it was too cheap and I didn't think it had the potential to squeeze up, you know, another 50% or higher.

So, I just said, I'm just going to leave it alone. And so as a result, um, I did not trade it. Now, did it go a little bit higher? You know, it did. It went a little higher without me. Um, but not that much. And there really wasn't a lot, um, of meat on the bone for on this one. So, I don't think long traders made much. I don't think shorts made much. There just wasn't much to to trade on this stock. That was the first stock that hit our scanner this morning.

So, then that was at about 7 a.m. So, I said, "Nope, I don't like that." Now, we'll scroll back on the scanners here so we can look at these from earlier today. Sometimes on a day where we have a ton of stuff moving, it's hard to really scroll back very far. But today, we didn't have a lot on the scans. Then, Zena hit the scans. So, how did I evaluate this? Low volume, very low relative volume, and high slightly higher float.

Not outside of the range, but given the light volume and being up only 12%, that was a no-go. So, no go on that one. All right. next scanner alert. VVPR, low relative volume, low total volume, not up much on the day, only 5%. That's a no-go. So, it's it really doesn't take much more than a few seconds. Now, ATNF hits the scanner and um Oh, actually, I don't know, for some reason. Oh, so here's the thing with ATNF. While this one was up this morning, uh this made the move after hours right here.

Okay, so it makes this move after hours, which by itself, I'm like, "All right, this is kind of weird. It's sort of at the end of the day." This is a stock that's been kind of tricky over the last few weeks, sort of popping up, but not that easy. It squeezes at 4:00 a.m. and then just starts selling off. Drops all the way back down to 4. Then it rallies up through 5, up to 575, kind of randomly there at like 8:30 in the morning.

Now during that period it started consolidating and so this is the area where I started watching it right through here. Now well truth be told I I did watch it right here as it broke five and I said to myself although the price and the float are okay because of its sort of you know history of being a little bit tricky over the last few days and the fact that it's well below the pre-market high even though from a stock selection point of view it looks good. the chart is throwing me off cuz we're below these previous levels and we're right underneath this 575 resistance.

So, I didn't feel like I could trust it here and it ends up squeezing up about 40 cents there from five up to 540. I started watching it when it broke over VWAP. It pulls back. I wa I thought maybe I could do a pullback and I just said, you know, I just I'm not feeling it. The level two is very thick. It's crowded. It's a bit of tugof-war. So, it rallies up here. It pulls back and then the MACD crosses over. It goes negative right there and we go into a more sustained pullback.

And I was watching it right here and in this area I loaded up my order at about $5.35. I had it ready to go and I thought this is a fivem minute setup and I might take this trade right here. And what am I looking for? Well, a retest of 575. And then I said to myself, you know, Ross, um, first of all, your beard looks great today and your outfit is on fire. You came to the table wearing red, wearing green, you know, like this is this is exactly what we do.

This is the way winners think. And so after patting myself on the back for, you know, 15 or 20 minutes, I looked up and I realized I had actually missed the whole move. No, I'm just kidding. So, I uh so I had the order ready to go here at 535, but I said to myself, um I don't know if this is worth the risk. You know, this is on a pullback. It already kind of did this false breakout right here, you know, where it then went lower.

It's sort of, you could almost say like a head and shoulders right here. So, it might have resistance right at this level. And the volume was a little bit lighter right here, which often happens during some of these consolidation periods. people kind of lose interest. And I was afraid of a jack knife. I was afraid it would pop up and then get slammed back down. And it was now coming up to 9:00 a.m. I hadn't taken a trade yet.

And I was like, I don't know if I want to break the ice on my first trade right here. This feels risky. So, I had my order ready and then I just sort of pulled my hand off and I said, just just wait. Patience. Just wait. If it's really strong, it'll give you more opportunities. And so it ends up breaking 540 right here and it goes up to 550 and then it goes right to 560 570 575 right here. And I knew I couldn't add there because that was that would be literally buying right into resistance.

But it managed to break resistance and go all the way up to six. So now we're on a little pullback, but it was after six green candles in a row. So as it's dipping down there, I thought, should I buy this one minute pullback? And typically I would, but this was already a little grindy kind of as it was moving higher. Very high volume, but the rate of change didn't really match it. And I just said, you know, I I don't know.

I was going to get in down here. Now to get in up here, I just I don't think I can. It pops up, it dips, it pops up a little bit more, then it pulls back. And then I was watching it right in here and wondering if I should try to take another trade for the move higher. And I just said, you know, I don't want to take a trade at the open because this can be a really tricky time. It opens, it pops. I said, let's see how this first one minute candle looks.

It was technically green, but it was a dogee. Then we start selling off a little harder. Then we rally back up more or less to a double top, which I said I can't trade that, but maybe if we get a cup and handle formation, I get the break through the high. That didn't happen. We ended up dropping lower. So, as it turns out, the stock goes up 72%, maybe a little higher, and I talked myself out of trading it. you know, this is better action than we had yesterday, but it just because yesterday was so slow and last week was slow, I just didn't feel comfortable pulling the trigger.

So, here's something that I'll say. Today is my second no trade day in a row, which is really unprecedented for me. And I think right now, I'm exercising a higher level of self-control and patience than I've had in the past. But there's a good reason for that. If you remember, on the first day of August, I lost $44,000. I went into the red and I spent last week recouping that loss. I had to be conservative on Monday, Tuesday, and Wednesday to not add to the losses and go deeper into the red.

So, as I started to recoup and recover those losses, you know, I was with small size. So, I ended up finishing the week and I'm up about 1012,000 on the month of August right now. So, coming into this new week, I'm back to whole. My account's back to all-time highs and I'm like, I don't want to do another draw down. So, hands off right now. foot off the gas, slow down, and if something's really good, then I'm going to lean in.

But, you know, if we don't get something really good, then I'm just going to have to be a bit more conservative. And so, today I'm being more conservative. Someone asked me, Ross, why are you being so conservative? And I said, uh, well, you know, does this seem like the time that I should be aggressive? And I'm not trying to, you know, you know, just does it seem like this is the time to be aggressive? And and my gut feeling right now is that the answer is no.

And I know for as a beginner it may be hard to kind of tell. I don't know. I can't you know I can't really tell is this I haven't been in the market long enough. So my feeling right now is that this is not the time to be pulling out the big guns. This is not the time to be aggressive. And in fact I've just took um a bunch of money out of my account. So over the last 6 months my account's been getting bigger and bigger and bigger.

I've had the buying power to take huge positions and I dropped my account balance back down. uh just I put in the request last week, but they just took the money out today because I just don't feel like I need to have that much uh buying power. So, I'm bringing things back down. I'm trying to rein it in. And once we start to see things picking back up, you know, by all means, I'm going to put my, you know, take on the risk and put the pellet to the metal, but in the meantime, I'm going to really try to exercise patience and self-control.

Now, kind of like doing a a really strict diet, there's a risk of um you know, kind of like just capitulating and giving in and then binging. And so I've got to be really careful here that I don't um you know hold really tight, hold really tight and then finally do something like super reckless because I was like so frustrated with holding such a strict discipline for so long that I just finally break. So I I need to be able to break the ice and take some trades, but there really wasn't anything today that just looked quite good enough.

So that's all right. That's the way it is. But as always, I'm going to show up every day and I'll be back at it first thing tomorrow morning. And I think because ATNF did give us some nice action that maybe we'll see a little more action tomorrow morning. Only time will tell, but I'll be here. I'm in the trenches every day side by side with you guys. So, for those of you guys that haven't already checked out the twoe trial, I hope you check it out and I'll see you guys streaming tomorrow morning at 7 am Eastern Standard Time.

Remember, as always, trading is risky. My results aren't typical and there's no guarantee you'll find success whether you trade on your own or you learn from me. So, please take it slow and practice in a simulator before putting real money on the line.