The Difference Between Finding Momentum And Chasing It

Spring is in full swing and I’m beginning to emerge from a truly horrendous March after a couple of weeks of solid, by-the-books trading. Of course, it hasn’t been easy. I mentioned last week how the lack of momentum has stymied any massive winning trades.

However, this week I want to focus on a recent trade in a stock that did have a strong bout of momentum, Reebonz Holding Ltd. RBZ, which jumped about 280 percent in the morning session and got halted six times on its way up. Even though I entered my first position at $11 when it first got halted, I unfortunately didn’t pounce on the full move from $8 to its peak above $27, though I did make a healthy $1,400.

Congratulations to anyone who did manage to make the most of that massive move. But, in my case, there are a variety of reasons why I wasn’t more aggressive on RBZ, one of which was how delicate the charts have been in some of these rocketing stocks this year.

The primary reason I didn’t pursue RBZ was that it would have required me to break a whole host of my own rules around chasing a stock that could have reversed the moment I stepped on the gas. There’s a full breakdown of the trade in my recap for that day, but I’ll spend a few words here explaining how I approach momentum and why, for every RBZ I might miss, there are dozens of other instances of saving myself from a $10,000, or even $20,000, loss.

First, although RBZ had many of the characteristics of a stock I would trade—low float, trading below $10, with a history of big moves—the stock wasn’t trading on any news. While that didn’t disqualify it, the setup became less compelling as the amount of risk I would have to take on climbed with the price. Recall, I recently had one of my worst trading days ever because I jumped into a stock without any news to carry it higher.

The second reason I didn’t continue pressing RBZ was, coming out of scalping the second circuit-breaker halt, I was simply on edge about buying into a third. In most cases, stocks that enter more than two halts going up generally don’t continue without some heavy consolidation after the third. The fact that RBZ made it to six before falling back down reveals how unique it really was.

Finally, the main factor as to why I didn’t put the pedal to the floor in RBZ was because I ultimately would be chasing the trade, which is generally just bad practice. Of course, I’ve chased in the past, and sometimes it’s worked out perfectly. Many other times it hasn’t, and right now I am trying to stick to the fundamentals of trading and remain consistently green.
Which is why, instead of chasing RBZ, I looked for a sympathy play in Castor Maritime CTRM which I netted $11,500. The difference between the two? I could manage my risk CTRM, but not in RBZ. Proof positive that the old saying “smarter, not harder” works for trading as well.

Warrior Trading is a content partner of Benzinga