Funny Old Week

This week has been pretty manic, thanks mainly (but not exclusively) to the pharma stocks. The likes of MYOV, CRSP, and of course supernova KRTX, have seen wild swings. Price increases and decreases in the hundreds of percent have made for some spectacular opportunities. Making $17,875 profit on one stock is unusual to say the least. And yet it’s also not. Because whilst the profit figure is undeniably on the high side, the way that profit was earned was completely standard.

This week’s stellar trades (and those that were missed), were all standard setups traded in the normal way. The closest I got to diverging from the regular daily grunt was changing a chart from 5 minute to 1 minute bars because it was moving so fast it was hard to keep up. The actual trade selection, entry, and exit though, were all bog standard. It has to be; nobody knows in advance what’s going to happen. There are clues, for sure, that things might be a bit special, but nobody knows. The only way to trade safely is to trade normally.

Changing our behaviour because we think something different might happen would be dangerous. It would be like deciding to drive on the wrong side of the road because we had a ‘feeling’ something might be blocking the road ahead on the correct side. The chances of this diversion from the norm would almost certainly end badly. If we truly suspected there was an accident ahead, the best thing we could do would be to slow down rather than break the rules of the road.

A Micro-Bubble

The reason I mention all this now is because I know KRTX has caused a stir in wider circles. People who don’t normally trade have been asking me what’s going on. People who don’t trade or have traded irregularly have been pulled into the markets to see what the fuss is about. It’s like a micro-bubble, drawing in new players and potential players who are blinded by the apparently easy charts the stock has been pumping out. Those without the experience, who don’t put in the daily grind (if you can call a couple of hours trading each day a ‘grind’) are looking at KRTX and saying, hmm, that looks easy enough. I could do that. They see the apparently easy money and they want a chunk of it.

And they’re right. It does look easy. Some mornings this week we could have bought KRTX stock on a whim and almost certainly made a profit whenever we chose to exit. Charts like that — charts when we can make money by accident — give false confidence. Unearned confidence is dangerous. Taking the knocks, learning what works and what doesn’t, is the only way to stay safe. Fortunately as traders we can take our knocks in a simulated environment, and then in a low-risk way when we go live by keeping our position sizes very small. We can learn to read the road ahead, and to navigate it safely under all conditions.

Be The Tortoise

I suspect a lot of money will be lost in the coming days by the inexperienced who have been pulled in by the gravity of this mini pharma bubble, who have been tempted by the riches on offer. The market has already calmed considerably. That doesn’t mean there aren’t any good opportunities, there are always good opportunities. They’ll be found by those who are used to digging for them day after day, not by those looking for the next gold rush. Slow and steady wins the race.