Really, I do.

Yes, it sucks to lose money but every time I make mistakes I feel like I’m learning something new, and man, I do love learning.

I’ll share the details of a terrible trade I made and what went wrong, maybe there’s something in it that can help you as well. It’s my biggest loss since August.

Briefly, ticker is EONC. What they do is unrelated. They’ve been in a parabolic uptrend for weeks on no news. There were good earnings but it actually had two down days following earnings.

Now the problem is, their earnings report was full of accounting tricks to make it look like they’re in good shape. In reality, their revenues were down 33%. It was also being pumped by Beacon Equity, which is another red flag. I won’t go into details of this.

What matters in the end is, I had a parabolic rise on a sketchy company. Which usually makes a great short. What I usually do in these cases is, find when the stock gets stagnant, attempt to short it with stop above latest resistance. I may lose but my loss is small, then I try again until I catch it. It’s a strategy that works great for me.

Going into the details of how the trade happened, may be long feel free to skip

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I first shorted it at 5.70 as it was looking weak, not able to break 6. Here’s the tweet:

“Short small position $EONC 5.70. It’s too illiquid but very overextended. Stop above 6.”

All good. However, my stop was mental and I had to go to the hospital for an emergency, left in a hurry. I came back and the stock was around 6.70. I could stop out there of course. I didn’t, because it was slowly fading since 6.90 and I thought it was an opportunity to double down and reduce the loss. I doubled my short at 6.43.

Held it overnight, next day it kept fading and I actually had a breakeven position at close. Since it was closing near the low, I held overnight.

Next morning, it started weak as well. I was getting ready to scale out with a profit and then Tim Sykes & his followers covered at 5.90. The stock spiked in minutes to 6.55, not giving me a chance to cover because of terrible spread (I don’t do market orders). I could’ve still stopped out around there. I didn’t. Reason: I thought this last spike was artificial (Sykes&co) and would fade again.

It didn’t. It triggered a squeeze instead and stock kept inching upward .10 on every 100 share buy. I waited to see if it made a convincing new high. Finally it did today, above 7. That was my final threshold.

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Now I was out with a significant loss on a trade where I could’ve profited or broken even. I actually did many things right & my entries were decent. I made tons of money doing exactly this in many stocks. The difference was the playing field. It was behaving differently. Let’s try to list:

- First and foremost, the stock has a tiny float. That’s what caused all the trouble. A low float stock doesn’t need much to get going. It can keep popping on no news. Yes, it will eventually fall. But there’s no limit to how high it can go.

- Also, since it has such low float, its moves are very sudden, it doesn’t fade properly. A mental stop can’t catch it on time. (I don’t think this is a good reason for using hard stops though)

- Most importantly, things like “I’ll cover for small loss if it breaks 6” don’t work. Because if it breaks 6, chances are you’ll find it at 6.40 and ask will be at 6.50 because of spread.

- I was expecting that reality would catch up and bring this crappy stock down. I know better than that, but this time I had let my guard down. In fact, there is no limit on how high a crappy stock can go. Fundamentals catch up eventually. But it may be days, weeks, months or even years before that, as evidenced by our dot-com bubble.

- It was always easy to find borrows anywhere, even though stock was so illiquid. This means there’s a great chance of shorters getting trapped and squeezed.

- I’m usually good at timing and picking tops/bottoms. But an illiquid stock like this gives many false signals and volatility takes it to unexpected places. It’s like trying to trade premarket all the time.

In short, the lesson I take is: Don’t try to call the top on an illiquid low floater before it clearly starts committing suicide, no matter how shitty the company is. What will work great on another stock will dig your grave on this one.

Did I not know this already? Of course I did, I’ve been trading long enough to see that. But I had to be reminded in a hard way. Sticking to all your rules consistently is very hard, it takes a few bumps on the way to get close to perfection.

There are no excuses. I fucked up big and I paid my fine. My previous losses taught me enough to keep this loss at 19%. Hopefully I won’t ever repeat these mistakes and never see a 19% loss again.