Most of Ricky Analog's success in the markets came as a result of a trial and error, the trader and social media personality told Benzinga.
“We started buying all kinds of crappy OTC pot stocks and it didn’t take long before we pretty much blew up the account,” he said.
Through time, profitability improved, but something remained missing.
“I had some really hot streaks, then I had a period where a few trades would claw back a large percentage of my gains.”
A friend told Analog that the trades were on "toxic companies," he said: "you have to know what you're playing with."
He reshifted his focus to company internals like SEC filings, risk management and charting.
"From there, I found consistency. Even when I would go through rough patches, I would always be okay because of my risk management."
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Focusing On Fundamentals
Traders should research companies prior to entering trades, with an eye on concerns such as poor fundamentals, Analog said.
He gave the example of when public companies are affiliated with shell corporations: nefarious activities tend to follow, he said.
Most often, these corporations exist for the enrichment of certain actors versus growing companies and increasing returns for long-term investors, Analog said.
It's also important to scan for odd stock purchase agreements, he said.
“So, being able to buy a stock at a discount to the VWAP for the foreseeable future — you know, that’s extremely dilutive — there’s no way they can ever buy at a price where it’s harmful to them. They can buy free willingly and just dump [shares] into the retail market.”
Technicals and risk definition play a large part in the execution of profitable trades, Analog said.
"You need to stick to the price action. Just because something has really terrible fundamentals doesn’t mean it can’t be dangerous. In fact, it's often the opposite. The sh------ the company makes it more dangerous of a stock to be involved in, especially on the short side.”
Analog's 3-Step Approach
- Pre-Market Scan: Looking for meaningful gaps in stocks that are up at least 45% in premarket trading. “The bigger the gap, the higher the probability that at some point it's going to be so extreme that you're going to get some reversion to mean,” he said.
- Fundamental Analysis: Determining whether large moves are warranted based on the reading of press releases, news and company filings.
- Technical Application: Determining whether volume and price are indicative of prospective trade opportunities. “I use the ATR to determine how extended something is. Something that gets about 5 to 7 ATR, then I'm like ‘OK, this is getting to the point where we are extreme.’” he said.
“If I see the technical setup I look for, then I’m willing to put capital at risk on this trade because it's meeting my criteria.”