Sympathy Momentum

Transcription of a Video by Ross Cameron

Today I want to talk about Sympathy Momentum. It’s a phenomenon we’ve seen in the market for ages. Sometimes you’ll hear the saying “a rising tide lifts all ships”. That is another interpretation of the “sympathy” we see in the markets. When one stock is strong, many others follow. This can present a lot of opportunity for active traders, but it doesn’t come without risk. What I’ll discuss today comes from my experience turning $583 into more than $10 million. No, my results are not typical. I’m not your average trader. But perhaps that’s one of the reasons you’ll find my opinion on this topic interesting. So let’s dive right in.

This week, we have seen a number of stocks make some really impressive moves. We’ve seen some great volatility. Friday morning 10/13/23, SASI is up 116%. It hit a high of over 150%. It’s a recent reverse split, a relatively low float stock. It’s got the 200 moving average up around $8.49. And it went from $3 a share all the way up to $7.20. I would say that’s a really nice move.

I think what’s going on right now is following that big move on Wednesday with TPST where it went up 4,000%. We’re seeing some FOMO, momo. We’re seeing some sympathy momentum. Traders are jumping on other stocks that are popping up and they’re jumping on them quickly because they don’t want to miss the next move.

The Flavors of Sympathy Momentum

And naturally, right now, shorts are probably being a little bit more defensive. They’re probably thinking “well, I might not jump in this quite so quickly. I just watched a couple of stocks go up like 500%, some of them on no news whatsoever”. And that’s how that imbalance shifts from bearish to bullish. And this is a flavor of that momentum that we had, certainly during the week of GameStop, where you have one stock that’s really strong and now you have three or four others or five or six others that are really strong and it’s sympathy momentum. Being a profitable day trader means mastering momentum.

It’s been a while since we saw really nice sympathy momentum. In the last six months have had a couple of little hot cycles. But on days where we had one stock that made a big move and a lot of those days I didn’t notice three or four or five other stocks popping up with the main stock. It was just kind of like one stock was strong and then everything else that popped up a little bit faded.

But on Wednesday afternoon, in the after hour session as TPST was making its high of 11.50, that’s when we saw SECO go up 500%. We saw OPGN go up several hundred percent. It was like back to back. We had four or give penny stocks that went up over 100%.

Emotional Markets Gives Way To Sympathy Momentum

Even this morning TPST gave another nice move. At this point it’s a bounce off the lows but it went from about 2.75 up to over 4.00 a share. And then SASI just gave us this move of 150%. So we’re seeing some opportunities, but what I would also mention is that I myself on Wednesday had a good morning, made $10,000 and I lost it all and went down $7,000.

That’s a $17,000 swing from the top to the bottom. And I was able to recover and finish the day green, before fees and commissions. But I kept trading, which was breaking all of my rules. I should not have kept trading, but I did keep trading. I feel victim to fomo. In hot markets when we see big ranges it’s really easy to make mistakes, take big losses, and then fall into the trap of emotional hijack. Because there was enough volatility, there were opportunities where I was able to recoup the losses, but it wasn’t the right thing to do.

I’ve noticed that with some other traders too had days where they’ll either start the day going and then go deep red to the biggest red day of the year and then they finish the day green. And it’s because these markets are so volatile. It’s very easy to underestimate how much you may be risking on some of these trades and inadvertently, you know, take 5,000 shares and then suddenly you’re down $0.50 a share and you’re like, oh, my gosh, I’m facing a pretty big loss right here.

Emotional markets fuel volatility as buyers panic sell at lows, exasperating the dips, and short sellers panic buy at highs, extended the up swings.

Capitalizing on Fomo vs Falling Victim to Fomo

There is a fine line between capitalizing on the volatility and the fomo in the markets and falling victim to it yourself. And it can happen very quickly. So I think it’s a good reminder that these volatile markets, there is profit, but you have to manage your risk, You have to be disciplined and you don’t want to overstay. You’re welcome. You know, if you get green, there’s nothing wrong with walking away and taking that profit and being grateful. And one of the rules that I set for myself is that if I give back half my gains, I have to walk away.

The problem for me was that on Wednesday, I didn’t follow that rule and I went from up $10,000 to -$7,000. That’s not a good day, right?  I should have followed my rules and walked away once I’d given back 1/2 my profits. That rule is designed to help prevent those extended draw downs.

So the goal is, of course, to make money trading and you just have to manage your risk as you’re doing it.

One way to mitigate is by reducing share size a little bit. Just to sort of factor in, we’re dealing with stocks that have larger ranges and there is money that can be made. But, you know, just don’t put yourself in a position where you’re going to max loss out because that’s what happened to me. I knocked myself out of the game too early on Wednesday, being too aggressive at the wrong time. And that meant I wasn’t able to properly capitalize on the opportunities later in the morning.

Keep yourself in the game and manage your risk!

If you found this article interesting, I wrote a similar article on my Medium account about Capitalizing on Sympathy Momentum in the markets. You’re also welcome to check out my book “How to Day Trade” by Ross Cameron.