It’s no secret that we’re a little nuts over here at ExtremePriceAction.com and we disregard some pretty big trading rules. Big rules that others SWEAR by, like —
- Stay away from low priced stocks
- Don’t risk more than 1% of your equity
- Stay away from volatility
The list could go on, but you get the picture. We’re rebels. But we do have a method to our madness, and that’s what I want to talk about here. To understand how we trade you need to understand 2 things.
- What is price action trading?
- What is extreme price action trading?
So let’s get started.
1. What is price action trading?
I used to suck pretty bad at trading. Well, “pretty bad” is a little bit of an understatement. When I first began trading I went through a 3 year losing streak that saw me blow up accounts, chase every method out there and try every indicator available.
To give you a little visual, take a look at what my charts used to look like:
No joke, that is an actual chart of mine. As you can probably tell, it was impossible for me to make any type of trading decisions.
My typical 98 step thought process went a little something like this —
- Wow, this stock is in an uptrend, as witnessed by the 1, 2, 5, 8, 11, 13, 21, 34, 55 day moving averages.
- But MACD is looking a little weak…I think.
- And Stochastics 5, 3,3, is looking overbought.
- Kind of.
- But Stochastics 14,3,3 looks kind of okay…
- Still, RSI looks pretty solid!
- We ARE kind of hugging the top of the Bollinger Band though.
- And I’ve heard that that isn’t that good.
- But there IS a great candlestick pattern on here.
I did this for three years until I figured out something very important —
It’s All About Price
Over the years I bean to learn how worthless most indicators really are and took them off my charts — and started to feel a lot better about trading.
I came to understand that this method of trading is called price action trading — making all of your decisions in market based on where price is NOW and what it is telling you NOW.
Here’s what my charts look like today:
I’m sure you’ll agree that a chart like this is much easier to look at — and areas of support and resistance much more identifiable. Which is really the main point behind price action trading.
Which beings us to:
2. What is Extreme Price Action Trading?
In a word, extreme price action trading is all about ACTION. It’s about finding killer moves, EXPLOSIVE gains and FAST profits. We do this by tracking and trading the stocks that most of the market stays away from:
Low priced, highly volatile stocks that can net you 10, 20 30 percent or more in a few trading days.
Unlike giant mega caps that usually move a few percent a month, these low priced volatile stocks can move 100’s of percent in the same amount of time. We only want a portion of that, and we have perfected our way of finding it. Let me show you what I’m talking about.
Below are 2 stock charts. One not so extreme. And one super extreme! You tell me which trade you’d rather be involved in.
Example 1: Not Extreme
Carmax (KMX). With a 10.1 billion dollar market capitalization, Carmax is a large cap stock. And it moves very slowly.
Check out the chart below. At first glance you might think it’s in a nice uptrend, at least for the last month.
And you’d be right. Anyone looking at the chart would be able to tell you. But looking closer you’d see that this “nice uptrend” has only returned a gain of 3.08%.
That turns $10,000 into $10,380.00.
Not bad, I guess. And still much better than whatever you could get at a bank! But let’s compare it to example #2 and see if we still feel the same way —
Example 2: Extreme
Below is an example of an extreme trade, Fuelcell (FCEL) over the same period.
Note the difference in price behavior.
Over the exact same period, Fuelcell Energy (FCEL), a small-cap stock with a market capitalization of around 600 million, gained 150%. That’s more than 48 times more than KMX, and it turns $10,000.00 into $25,000.00.
Which return would YOU like?
For me, trading is all about hunting for BIG moves in SMALL stocks. Are they riskier than bigger, brand name stocks? Heck yeah they are — and you really need to know what you are doing — but as you can see, the rewards can KICK ASS!
Warning: This isn’t for everyone!
Honestly, extreme price action trading is not for everyone. I want to say that right up front!
Some traders just don’t want to carry that much risk and will freak out to be in positions like this. They prefer to see gains and losses play out over a longer period of time with much less volatility.
That’s cool. Good for them.
But that isn’t me!
I’m here to go big and hunt for big returns in the shortest amount of time possible — and I’m willing to take risks to do it. If that’s you, then you’re at the right place.