The question open for discussion is this: are traders by and large masochists? Bella and I had a brief chat today regarding the breakout trade in KERX that occurred on January 28th. He asked me to do a Webinar on it as he thought I might offer some more nuance on how to manage the trade where his trade management would be something like “above 5.10 I’m long”.

KERX had been discussed in our AM Meeting where we review the top In Play names for the day. It was discussed in the context of a stock potentially breaking out on the weekly chart, as well as a “small biotech” both of which have a history of making “silly moves” (as Gman might describe it) from a few dollars to double digits rather quickly. The catalyst for KERX being in play was good Phase III data which is the best type of data you can get if you are a small biotech. And as everyone knows the macro picture in our market is that of a Teflon superman with an immunity to kryptonite.

This is the type of market where a consortium of momentum funds can take stocks for amazing multi-day rides before selling (i.e. NFLX). So the market demands as traders that we be mentally prepared for larger moves to the upside in stocks with catalysts. What we saw on our desk was a bunch of different trades being made in KERX none of which were treated as Trades2Hold (SMB nomenclature). There were some “scalp longs”. There were some attempts at fading when the stock came in a bit below 6. But zero “I’m long above pre-market high of 5.10 and I just added above weekly 5.50 resistance.” That is just making trading too hard.

Here is the video from today’s AM Meeting where I reference KERX in two different segments.  The first is about the Big Picture in KERX and how sometimes in trading things can be simple. And traders who are use to processing so much information will occasionally make mental errors when presented with clear information and apply their negative self talk psyching themselves out of trades. Which brings me back to Bella’s original comment “above 5.10 I am long”.

Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].

*No relevant positions